The Current State of Staking: Institutional Adoption at Scale

Staking-specific risk disclosure:

To earn staking or restaking rewards, cryptoassets must typically be staked or delegated within a protocol or through a third-party provider. Staked cryptoassets may be subject to lock-up periods, withdrawal delays, or protocol-defined exit queues and may not be immediately accessible. Staking and restaking rewards are not guaranteed and may vary over time or cease entirely. Staked assets remain fully exposed to market price volatility and may suffer partial or total loss in value, including through slashing events, technical failures, or adverse market conditions.

Institutional participation in staking reached a watershed moment in early 2026. Over $58 billion in capital now flows through liquid staking protocols, whilst an additional $19 billion has moved into restaking, according to DeFi Llama. In Europe, several ETPs have launched that stake underlying Ethereum holdings to generate 3–4% yields for fund holders through familiar regulated structures. Custodial banks and institutional-grade service providers are exploring or entering the market, signalling that staking has evolved from a crypto-native activity to a mainstream yield strategy.

For investors and portfolio managers, staking offers a source of yield on long-term holdings of PoS assets, although returns are variable, not guaranteed, and depend on protocol rules, network conditions, and validator performance.

In this edition of The Bridge, we examine liquid staking and restaking, assess the current state of these markets, and outline recent developments and their implications for institutional participants.

Risk context:
Staking yields are variable and depend on protocol design, validator performance, network participation, and market conditions. Institutional adoption does not eliminate exposure to slashing risk, smart-contract vulnerabilities, liquidity constraints, or regulatory change.

Fee disclosure:
Staking and restaking rewards are typically subject to fees and charges. These may include validator commissions, operator fees, protocol-level fees, smart-contract or infrastructure costs, custody fees, fund management charges, performance fees, and third-party service fees. Such costs are deducted from gross rewards or charged separately and will reduce net returns to investors. The level and structure of fees vary by provider and product.

Staking has rapidly progressed from a retail and crypto-native activity to a mainstream strategy for institutional investors holding crypto assets. In 2025, we saw major institutions from hedge funds to asset managers and even banks actively engaging in staking as a source of yield on long-term holdings. This participation takes several structured forms.

Participation via Liquid Staking Tokens

Many institutional investors participate in staking via holding liquid staking tokens like stETH, rETH or others on their balance sheet. Some fund managers view LSTs as yield-bearing assets analogous to bonds. In some cases, institutions use wrapped staking through DeFi (for example, depositing ETH into Lido directly through custom smart contracts). This approach simplifies operational burden but introduces smart-contract risk and reliance on the LST issuer.

Fee disclosure:
Liquid staking protocols generally charge a protocol fee on staking rewards (for example, a percentage of rewards retained by the protocol and its node operators). Node operators may also receive commissions. Where institutions access staking via custodians or structured wrappers, additional custody or platform fees may apply. These charges reduce the effective yield received by the investor.

Risk context:
Liquid staking tokens are not fixed-income instruments and do not provide guaranteed returns. Their value is subject to market volatility, liquidity conditions, and protocol-specific risks, including smart-contract failure or issuer insolvency. Although liquid staking tokens are designed to improve liquidity, they still represent staked positions. In certain market conditions, LSTs may trade at a discount to the underlying asset, experience reduced liquidity, or be difficult to exit at short notice. Where assets are staked natively or through custodial arrangements, unbonding or withdrawal periods may apply, during which assets cannot be accessed or transferred.

To mitigate custody concerns, a few specialized wrappers have emerged: e.g., Indexed staking funds that hold a basket of LSTs, or tranche products that separate principal and yield (so an institution can choose a fixed-rate tranche). Additionally, some CeFi firms offer tokenized staking products that represent a share in a staking pool (Coinbase’s cbETH is one such token). These effectively give institutions a wrapped position that can be custodied like any other token and is often easier to report and transfer than a native staked position.

Staking via Funds and Structured Vehicles

An emerging route is through staking-oriented funds or ETFs. In Europe, several ETPs now exist that not only hold crypto but also stake it to generate yield for the fund. For example, a Swiss issuer might have an Ethereum ETP that stakes the underlying ETH and periodically distributes the staking rewards to fund holders. This gives traditional investors exposure to staking yields through a familiar instrument. The U.S. is moving in this direction as well. This adds a 3–4% yield on top of price appreciation, which is a compelling proposition for investment committees. (Any yield generated through staking within funds, ETPs, or structured vehicles is variable and not guaranteed. Distributions may fluctuate, be suspended, or be lower than expected due to market conditions, protocol changes, slashing events, operational issues, or fees. Historical or indicative yield levels should not be relied upon as an indicator of future performance.)

Separately, private funds (like venture funds or dedicated staking yield funds) allocate capital to run validators and pass the yield to limited partners. These vehicles often engage in more complex strategies (like using leverage or restaking to boost yields), effectively functioning like fixed income hedge funds in the crypto space.

Fee disclosure:
Staking-oriented funds, ETPs, and structured vehicles may charge management fees, administration fees, custody fees, and in some cases performance fees. Where leverage or restaking is used, additional financing or operational costs may apply. These expenses reduce the net yield distributed to investors and may materially impact overall returns.

Risk context:
Yield projections do not account for potential asset price declines, slashing events, operational failures, or changes in network economics. Structured staking vehicles may introduce additional leverage, counterparty exposure, or liquidity risk.

In summary, institutional participation in staking is maturing from holding liquid staking tokens to potentially directly influencing staking ecosystems (through governance of LST DAOs or running validators). But one theme is common: abstraction and integration. Staking is being abstracted into familiar investment formats and integrated into institutional-grade custody and reporting systems.

At the time of writing, over $58.33 billion in DeFi TVL is in liquid staking, with an additional $19.63 billion in restaking protocols. This represents a market that has grown substantially post-Merge and demonstrates institutional demand for yield-bearing infrastructure participation.

Figure 1: Total value locked in liquid staking protocols has exceeded $58.33 billion

Source: DeFi Llama (27 January 2026)

Past performance is not indicative of future results.

Figure 2: Restaking TVL across DeFi currently stands at $19.63 billion

Source: DeFi Llama (27 January 2026)

Past performance is not indicative of future results.

Risk context:
Total value locked reflects deposited assets and does not guarantee sustainability of yields, protocol resilience, or future capital retention. TVL can decline rapidly during periods of market stress.

Liquid Staking: Solving the Capital Lock-Up Problem

Leading liquid staking protocols for Ethereum have grown substantially post-Merge, now securing a significant share of ETH’s supply. The sector’s top protocol is Lido with a TVL of over $27.6 billion. This shows Lido’s dominance at over 47.41% of all staked ETH TVL. Its stETH token enjoys deep liquidity and DeFi integration, contributing to a strong network effect (users prefer the LST with the most utility, which further entrenches Lido’s lead).

Figure 3: Lido has a TVL dominance of over 47% in the ETH liquid staking sector

Source: DeFi Llama (27 January 2026)

Past performance is not indicative of future results.

Other alternatives have grown as well, emphasizing permissionless node participation and greater geographic/client diversity. For example, Rocket Pool’s rETH is backed by thousands of independent operators worldwide, each required to post a sizable bond in ETH and RPL (Rocket Pool’s token) to align incentives. This design offers increased slashing protection, as any validator losses are first covered by the operator’s bonded stake. Centralized exchanges like Coinbase also constitute a large share of staked ETH through custodial offerings and an LST (cbETH).
Risk context:
Concentration within a single liquid staking provider may increase systemic and governance risk. Protocol dominance does not eliminate smart-contract, operational, or regulatory vulnerabilities.

Restaking: Capital Efficiency Through Layered Security

With over $19.63 billion in restaked TVL, it is abundantly clear that there is a huge demand for additional yield on top of native staking. (Restaking is a higher-risk activity than native staking. It involves placing staked assets under additional conditions and exposes them to new sources of loss beyond the base blockchain. Restaking rewards are not guaranteed and are earned in exchange for accepting increased technical, operational, and slashing risk.)

EigenCloud (formerly called EigenLayer) on Ethereum is the pioneering restaking protocol. At a high level, EigenCloud creates a marketplace between restakers (ETH stakers seeking higher rewards) and AVSs (off-chain or cross-chain services that need decentralised security). When a user restakes via EigenCloud, they either directly use their validator (if they are a solo staker) or delegate their staked ETH/LST to a third-party operator who will run the required software for various AVSs. EigenCloud works by placing the staked asset (or liquid staking token) under additional rules. By opting in, the restaker accepts that their stake can now be penalised not only for Ethereum-level misconduct, but also if the operator fails to perform correctly for any of the services they choose to provide. In other words, poor behaviour in one attached service can result in a loss on the original stake. In return for taking on this extra risk, restakers earn additional rewards, paid either in ETH or in the service’s own token, depending on how that service is structured.

Fee disclosure:
Restaking rewards are typically shared between restakers, operators, and in some cases the restaking protocol itself. Operators may retain a commission for running AVS infrastructure, and AVS-specific fee structures may vary. Additional smart-contract, delegation, or infrastructure fees may apply. These layered fee arrangements reduce the net yield received by restakers and increase complexity in estimating expected returns.

Key entities in restaking:

• Restaker: An ETH holder, for example, who has staked (natively or via an LST) and opts into restaking. The restaker is essentially staking again on new services, and bears the risk of additional slashing. They either run a validator themselves for each AVS or appoint an Operator.
• Operator: A validator (could be the restaker or a third party) who actually runs the nodes/software for the AVS. Operators interface with each AVS (running oracle nodes, bridge validators, etc.) and earn a portion of AVS rewards for their work. In EigenCloud, restakers can delegate to professional operators, similar to how one might delegate tokens to a validator in other networks.
• AVS (Actively Validated Service): Any application or protocol that outsources its security to restaked ETH. Examples include oracle networks, cross-chain bridges, data availability layers, mempool services or even new blockchains that don’t launch their own token. An AVS sets specific rules that if an operator fails or cheats, a slashing event on EigenCloud will be triggered. The AVS usually pays fees or incentives to attract restakers.
• Application (App): The end-user application or ecosystem that the AVS serves. For instance, an AVS can be a price oracle and the App could be a DeFi platform consuming those price feeds.

EigenCloud’s design allows one validator to provide services to multiple projects simultaneously with the same stake, creating pooled security. In principle, if a restaker trusts the risk/return of many AVSs, the same ETH could be reused to validate an oracle network, a bridge and a data layer. This multiplies potential yield.

This greatly lowers the barrier to bootstrapping security for new projects. Rather than convincing thousands of people to stake a new token, a project can tap into Ethereum’s enormous existing validator base by offering a fee to restakers.

Risk context:

• Higher yields in restaking are compensation for additional layers of risk, including correlated slashing, operator misconduct, smart-contract vulnerabilities, and AVS-level failure.
• Yield enhancement through restaking increases exposure to correlated losses and operational complexity. Losses from a single AVS failure may affect the entire underlying stake.
• While restaking may reduce bootstrapping costs for new projects, it does not eliminate execution risk, adoption uncertainty, or the possibility of protocol failure.

How Liquid Staking Tokens Work

Staking keeps proof-of-stake networks operational, but it comes with a trade-off. Capital gets locked up and sidelined from the rest of DeFi. Liquid staking emerged to solve this exact problem. It allows token holders to earn staking rewards while keeping their capital liquid and usable across decentralised markets.

The mechanism is straightforward. A user stakes the network’s native token through a liquid staking protocol and receives a transferable derivative token in return, commonly referred to as a Liquid Staking Derivative (LSD). This derivative represents the underlying staked position and can be deployed across DeFi for lending, trading, or yield strategies, while the original stake continues to contribute to the network’s economic security.

Lido’s stETH on Ethereum is an example. Lido Finance pools user deposits into its validator lots and delegates operations to a roster of professional node operators vetted by Lido’s DAO. In return, Lido issues stETH (the LSD) which is a tokenized claim on the deposited ETH plus any staking rewards. stETH is a rebasing token: its quantity in holder wallets increases daily as rewards accrue, reflecting earned yield. Importantly, stETH remains liquid and can be traded or used as collateral across many platforms, addressing a major pain point for institutions that require flexibility. Lido’s approach abstracts away validator operation while preserving onchain liquidity.

How Restaking Creates Additional Yield

While liquid staking addresses liquidity of staked assets, restaking addresses the capital efficiency and extensibility of staked security. Restaking allows the same staked asset (e.g. ETH) to be used to be staked for additional protocols or services beyond the original blockchain. Put simply, a user can deposit their LST into a restaking platform, which then leverages that stake to validate new actively validated services (AVS) in exchange for extra yield. It’s analogous to rehypothecation in traditional finance, except the original staker retains ownership and extends their trust to new applications.

EigenCloud on Ethereum is the pioneering restaking protocol. At a high level, EigenCloud creates a marketplace between restakers (ETH stakers seeking higher rewards) and AVSs (off-chain or cross-chain services that need decentralised security). When a user restakes via EigenCloud, they either directly use their validator (if they are a solo staker) or delegate their staked ETH/LST to a third-party operator who will run the required software for various AVSs.

Figure 4: TVL in EigenCloud ETH restaking currently stands at $13.19 billion – close to 96% ETH restaking TVL dominance.

Source: DeFi Llama (27 January 2026)

Past performance is not indicative of future results.

EigenCloud works by placing the staked asset (or liquid staking token) under additional rules. By opting in, the restaker accepts that their stake can now be penalised not only for Ethereum-level misconduct, but also if the operator fails to perform correctly for any of the services they choose to operate for. In other words, poor behaviour in one attached service can result in a loss on the original stake. In return for taking on this extra risk, restakers earn additional rewards, paid either in ETH or in the service’s own token, depending on how that service is structured.

Similar to LSTs which represent a claim on staked positions, liquid restaked tokens (LRTs) are derivative tokens that represent a claim on restaked positions. These allow secondary trading of restaked positions (with the embedded risk/return profile). In 2026 we may even see structured products that tranche restaking yields (e.g. offering a fixed yield to one party and leveraged exposure to another via protocols like Pendle).

Risk context:
Future structured restaking products may introduce leverage, tranche complexity, and heightened counterparty or liquidity risk. There is no assurance such products will develop as anticipated.

For institutions, both liquid staking and restaking open new avenues for yield, but also a need for rigorous risk management.

Validator concentration and counterparty risk
In traditional staking, delegating to a single provider or pool concentrates risk. That provider could suffer downtime, slashing, insolvency, or regulatory pressure. The Lido example illustrates this at the network level but the same logic applies at the portfolio level if an institution fails to diversify operators. Best practice is to spread stake across independent validators or use structurally decentralized pools.

In restaking, this risk is amplified. Institutions typically delegate to an operator who may stake for  multiple services simultaneously. If that operator fails or behaves maliciously, losses can propagate across base staking and all attached AVSs at once—a correlated slashing scenario. This makes operator due diligence critical and argues for distributing restaked exposure across multiple operators rather than concentrating it.

Technical slashing and Lego risk
On Ethereum, slashing is rare and usually tied to clear misconduct such as double-signing. For high-quality operators, the probability of this happening is low and largely operational in nature. The larger risks tend to be key mismanagement or temporary downtime, which are mitigated through mature infrastructure and monitoring.

Meanwhile, restaking introduces Lego risk, which arises from stacking multiple services on the same underlying stake compounds failure probability. Each additional AVS is another block in the stack. If any one fails (due to buggy slashing or faulty oracle data), the entire stake is exposed. Restaking also introduces additional smart-contract risk at the protocol layer. Institutions therefore generally tend to limit AVS exposure to a small, well-understood set rather than maximizing yield through breadth.

Financial and market risk
Staking yields depend on protocol design and network activity. As participation and fees rises, per-validator yield falls. And as MEV rises, yield too rises. Illiquid staking methods introduce exit risk, which liquid staking tokens partially mitigate.

Restaking adds market risk when rewards are paid in AVS tokens. High yields can be offset by token volatility or illiquidity. Even when rewards are paid in ETH, they depend on AVS adoption and usage. Restaked assets may also be sometimes slower to exit, remaining exposed to market risks during cooldown periods. From a portfolio perspective, restaking resembles credit exposure wherein institutions are effectively underwriting protocol failure risk in exchange for a premium.

Composability and inter-protocol risk
Using staking derivatives in DeFi compounds dependencies. An institution staking via Lido and lending stETH inherits exposure to both protocols. Restaking is inherently compositional and additional yield strategies further increase complexity. Each added layer introduces new smart-contract, oracle, and governance risks. Most institutions respond conservatively, preferring simpler structures with fewer moving parts even at the cost of lower yield.

Regulatory and legal risk
Legal treatment of staking remains unsettled. In the EU, MiCA does not regulate staking directly but treats staking-as-a-service as a custody activity, potentially making custodians liable for losses, including slashing. This has material implications for contractual risk allocation.

Restaking is even more ambiguous. It is unclear whether restaking platforms are regulated services or neutral software layers. In the event of losses from AVS failures, institutions may have limited legal recourse. This uncertainty explains why many institutions cap restaking exposure or restrict it to jurisdictions and structures they are comfortable defending legally.

For institutions, staking is increasingly viewed as low-risk, infrastructure-level yield when executed with reputable partners and proper controls. However, restaking sits firmly in a higher-risk, higher-return category. As restaking matures, we expect a convergence of DeFi risk management practices and staking (e.g., insurance products for slashing events, credit-style ratings for AVSs, and potentially regulatory scrutiny (if these arrangements are deemed financial contracts). Over time, as platforms mature and regulatory clarity improves, institutional confidence may grow but for now, restraint remains.

Risk context:
Even when executed through reputable providers, staking involves market, technical, and legal risks that may result in partial or total loss of capital.

In summary, institutional staking structures are converging towards solutions that mimic traditional financial services: assets stay with qualified custodians, risk is mitigated via contracts and insurance, liquidity is managed via tradable wrappers, and everything is packaged in investment-friendly vehicles when needed. The direction is clear: make staking as easy as buying a money market fund, and as acceptable from a regulatory perspective as holding any other yielding asset.

As this happens, staking will move from a peripheral activity to a core allocation in institutional portfolios holding crypto. The fact that even custodial banks and big financial names are exploring or entering the staking business (through partnerships or tech integration) underscores that staking is becoming an extension of the conventional financial system in many respects – albeit one that still demands understanding of unique crypto risks.

(Staking and restaking should not be viewed as capital-protected or low-risk income strategies, and investors may lose some or all of the value of their cryptoassets.)

Risk context:
There is no certainty that institutional adoption of staking will continue at the current pace or that staking will become a core portfolio allocation. Regulatory developments, technological failures, or adverse market conditions may materially impair staking markets and associated assets.

This Financial Promotion has been approved by Zeyro LTD (FRN 1001386) on Feb 13, 2026, 12:39:48 PM

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