Ethereum (ETH): why restaking demand is locking more ETH out of circulation

Explore how rising restaking on Ethereum locks more ETH, impacts liquidity and presents new opportunities for investors in 2025.

• Restaking is squeezing Ethereum supply into long‑term staking contracts.
• The trend reduces circulating ETH, affecting DeFi liquidity and yield strategies.
• Understanding the mechanics helps retail investors navigate risk and opportunity.

Ethereum (ETH): why restaking demand is locking more ETH out of circulation has become a pivotal topic for crypto‑intermediate investors in 2025. As staking protocols mature, users increasingly convert their liquid ETH into staked derivatives that can be further leveraged or farmed across multiple DeFi platforms. This chain reaction not only reduces the amount of freely tradable ETH but also reshapes the economic incentives around liquidity provision and borrowing.

Stakeholders—from yield farmers to institutional treasury managers—are noticing that more ETH is now tied up in staking derivatives like stETH, rETH, or LDO‑tokenised positions. The question is: how does this restaking cascade lock ETH out of circulation, and what does it mean for the broader Ethereum ecosystem?

This article will break down the mechanics of restaking, quantify its impact on ETH supply, examine market use cases, highlight risks and regulatory considerations, and look ahead to 2025 and beyond. By the end you’ll understand why restaking is tightening liquidity and how platforms like Eden RWA offer an alternative path for investors seeking exposure to real‑world assets.

Background: Staking & Restaking on Ethereum

Staking on Ethereum refers to locking ETH in the network’s consensus mechanism (Proof of Stake) to earn rewards. Protocols such as Lido, Rocket Pool, and Ankr issue liquid staking tokens—stETH, rETH, or ANKR—that represent a claim on the underlying staked ETH plus accrued rewards.

Restaking extends this concept by taking those liquid staking tokens and using them as collateral or liquidity in other DeFi protocols. For example, a holder of stETH can deposit it into Curve’s stable‑coin pool, supply it to Aave as collateral for borrowing, or lock it in a vault that offers leveraged exposure.

Each restaking step effectively creates a new layer of derivative tokens, amplifying the amount of ETH that is no longer available for direct trading or spending. Because these derivatives are often required to be held over long periods (e.g., until validator exits), they contribute significantly to ETH’s locked supply.

How Restaking Locks ETH

The process can be broken down into three core stages:

1. Deposit & Minting: Users send ETH to a staking protocol. In return, the protocol mints liquid staking tokens (e.g., stETH) that mirror the deposited amount plus rewards.
2. Liquidity Provision: The newly minted tokens are then supplied to other protocols—Curve liquidity pools, Aave vaults, or yield‑farming platforms—to generate additional yield or leverage. These protocols often require collateral to be held for extended periods.
3. Restake & Compound: The yields from the secondary protocols can themselves be restaked back into the original staking platform, creating a compounding loop that further locks ETH in long‑term positions.

This layered approach means that a single unit of ETH can become part of multiple derivative layers simultaneously. As more participants engage, a larger share of the total circulating supply becomes tied up in non‑tradable tokens.

Market Impact & Use Cases

Restaking has several practical applications:

• Yield Farming: By combining staking derivatives with liquidity pools, users can earn compounded rewards from both the validator and DeFi yield streams.
• Collateral for Loans: Platforms like Aave allow stETH to serve as collateral, enabling borrowers to access fiat or stablecoin without selling their ETH holdings.
• Leverage & Arbitrage: Traders can use staked derivatives to take leveraged positions on price movements of ETH or other assets.

The cumulative effect is a reduction in the pool of liquid ETH available for spot trading, which can drive up volatility and influence market dynamics. In 2025, we see more institutional treasuries using restaking strategies as part of their risk‑adjusted yield portfolios.

Risks, Regulation & Challenges

While restaking offers higher yields, it introduces several layers of risk:

• Smart‑Contract Risk: Derivative protocols are subject to bugs or exploits that could lead to loss of collateral.
• Liquidity Crunch: In a market downturn, unwinding staked positions can be slow, potentially forcing liquidators to sell at depressed prices.
• Regulatory Uncertainty: The SEC and MiCA are still clarifying the status of staking derivatives. A sudden regulatory clampdown could devalue these tokens.
• Centralization Concerns: Large staking pools may concentrate voting power, affecting network governance.
• KYC/AML Compliance: Some protocols now require identity verification for large withdrawals, limiting anonymity.

Investors should monitor the health of each layer in the restaking stack and understand that a failure at any point can cascade through the system.

Outlook & Scenarios for 2025+

• Bullish Scenario: Continued adoption of liquid staking leads to higher yields, encouraging more capital inflows and further locking ETH. DeFi platforms innovate with multi‑layer derivatives, creating new liquidity pools.
• Bearish Scenario: A regulatory crackdown or a major protocol exploit forces widespread liquidation, releasing large amounts of stETH back into the market and causing a sharp drop in ETH price.
• Base Case: Gradual maturation of staking infrastructure with moderate yields. The proportion of locked ETH stabilizes around 30–40 % of total supply by mid‑2026, providing predictable liquidity for investors.

Eden RWA: Tokenizing Caribbean Luxury Real Estate

While restaking concentrates ETH in derivative tokens, platforms like Eden RWA offer an alternative investment path that taps into real‑world assets. Eden RWA democratizes access to French Caribbean luxury real estate—Saint‑Barthélemy, Saint‑Martin, Guadeloupe, and Martinique—by issuing ERC‑20 property tokens backed by SPVs (SCI/SAS). Each token represents a fractional share of a carefully selected villa.

Key features:

• Income Generation: Rental income is paid in USDC directly to holders’ Ethereum wallets via automated smart contracts.
• Experiential Layer: Quarterly, a bailiff‑certified draw selects a token holder for a free week in the villa they partially own.
• : Token holders vote on renovation decisions and sale timing, ensuring aligned interests between investors and property managers.
• Transparent audit trails via blockchain and third‑party audits of smart contracts.

Eden RWA demonstrates how tokenized real‑world assets can provide passive income and utility without locking up large amounts of ETH for extended periods. For investors looking to diversify beyond staked derivatives, Eden’s model offers a tangible alternative that leverages Ethereum’s infrastructure while delivering stable yield from physical properties.

Explore the Eden RWA presale and learn how you can gain exposure to high‑end Caribbean real estate through ERC‑20 tokens:

Eden RWA Presale | Presale Portal

Practical Takeaways

• Track the percentage of ETH locked in staking derivatives to gauge liquidity pressure.
• Monitor the health and audit status of each protocol in your restaking stack.
• Watch for regulatory announcements from SEC, MiCA, or local jurisdictions that could affect staking tokens.
• Consider diversifying into tokenized real‑world assets like Eden RWA to balance yield with reduced locking risk.
• Evaluate the fee structure of each DeFi platform—high gas fees can erode restaking returns.
• Verify KYC/AML requirements if you plan to withdraw large amounts from staking protocols.
• Use portfolio trackers that support derivative tokens (e.g., DeFiLlama, Zapper) for real‑time exposure monitoring.
• Stay updated on validator performance metrics; slashing risk can affect the base ETH value of derivatives.

Mini FAQ

What is liquid staking?

Liquid staking allows users to lock their ETH in a validator while receiving a token that represents a claim on the staked ETH and rewards, enabling further use in DeFi.

How does restaking affect Ethereum’s price?

Higher locked supply can reduce liquidity, potentially increasing volatility. However, yield incentives often counterbalance this effect by attracting more capital into staking.

Is Eden RWA regulated?

Eden RWA operates through SPVs registered in French law and follows local real‑estate regulations, while its blockchain layer adheres to Ethereum’s open‑source standards. Investors should review the platform’s legal disclosures.

Can I withdraw my staked ETH instantly?

No. Staking on Ethereum requires a 32‑week unbonding period before the ETH can be withdrawn from validators.

What happens if a staking protocol fails?

A failure could lead to loss of collateral and potentially affect all derivative tokens built atop that protocol. Diversification across multiple protocols mitigates this risk.

Conclusion

The surge in restaking demand is reshaping Ethereum’s liquidity landscape by locking increasingly large portions of ETH into long‑term derivatives. While the higher yields appeal to yield farmers and institutional treasuries, the resulting supply contraction introduces new risks—smart‑contract vulnerabilities, regulatory uncertainty, and liquidity constraints.

For retail investors, understanding the mechanics and monitoring key metrics is essential for navigating this evolving environment. At the same time, alternative investment avenues such as Eden RWA’s tokenized real‑world assets offer a complementary strategy that can diversify exposure while still leveraging Ethereum’s infrastructure.

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.