Restaking Token Risk

Definition ∞ Restaking token risk refers to the additional dangers associated with using liquid staking derivatives (LSDs) as collateral for further staking activities on other protocols. This practice introduces layers of smart contract risk, slashing risk from multiple protocols, and potential correlation risk across different networks. It increases the complexity and potential for cascading failures. Participants face compounded exposure to various protocol vulnerabilities.
Context ∞ Restaking token risk is a prominent discussion point as liquid staking and restaking protocols gain traction in decentralized finance. Debates center on the true risk profile of these layered yield strategies and their systemic implications. Understanding these risks is crucial for participants in advanced DeFi applications.