In the current DeFi market, Staking has become a crucial area, with the liquidity staking protocol Lido's Total Value Locked (TVL) taking the lead. The Lido protocol not only provides more profit opportunities for ETH holders but also actively contributes to the decentralization and security of the Ethereum network.
Since Ethereum transitioned to the Proof of Stake (PoS) consensus mechanism, there has been a sharp increase in demand for Staking ETH, further driving the development of liquidity staking protocols. Today, numerous blockchain platforms such as Ethereum, Near, BNB Chain, Avalanche, Cosmos, Sui, Aptos, etc., have adopted the PoS consensus mechanism.
The core value of liquidity staking lies in solving the issues of simplified operations, unrestricted liquidity, and decentralization during the staking process.
What is ReStaking?
ReStaking is a financial activity where liquidity staking token assets are used for validator staking on other networks and blockchains to achieve higher returns. With ReStaking, stakers can choose to reinvest a portion or all of their staking rewards into nodes to increase future profits. However, it's important to note the risks of smart futures vulnerabilities and validator staking behavior fraud in ReStaking.
In ReStaking networks, besides accepting the original assets, other assets such as LSD tokens, LP tokens, etc., are also accepted to enhance network security. By unlocking infinite liquidity sources in the DeFi market, it generates real income for both the protocol and its users. The revenue in ReStaking networks and standard networks mainly comes from security leasing, validator fees, as well as fees generated by dApps, protocols, and layers. By participating in network staking, stakers receive a portion of the network revenue and may also receive inflation rewards in the network's native tokens. This model provides investors with the opportunity for dual profits from both the original network and the parallel network (ReStaking network).
Operation of ReStaking
Liquid Restaked Tokens (LRT) are similar to liquidity staking tokens on Ethereum, representing tokenized assets deposited into EigenLayer, effectively unlocking liquidity that was previously locked. The services provided by liquidity restaking protocols are divided into native restaking services and LST restaking services. Most liquidity restaking protocols provide native restaking to users without requiring them to run Ethereum nodes. Users only need to deposit ETH into these protocols, and the protocols will handle the Ethereum node operations in the background. Additionally, most liquidity restaking protocols accept the largest LST, stETH, while some LRT protocols can accept various types of LST deposits.
What is EigenLayer?
EigenLayer is an Ethereum-based intermediate protocol that introduces the concept of restaking, allowing Ethereum nodes to restake their staked ETH or LSD tokens into other protocols or services that require security and trust, thereby gaining double returns and governance rights.
Core Components of EigenLayer:
- TokenManager: Manages stakers' deposits and withdrawals.
- DelegationManager: Registers operators and tracks and manages operator shares.
- SlasherManager: Manages slashing logic, providing punishment capabilities interface for AVS developers.
Stakers stake their LST through TokenManager to earn additional income and trust the corresponding operators (similar to staking in Lido or Binance). Operators receive LST assets after registration via DelegationManager and provide node services to projects needing AVS services, extracting income from node rewards and fees provided by the projects. AVS developers implement some general or specific Slashers to run on nodes, providing services to project parties (AVS demanders) who purchase these services through EigenLayer, directly obtaining consensus security.
Risks of Liquidity Restaking
Liquidity restaking protocols deploy a set of smart futures on EigenLayer to facilitate user interaction, assisting users in depositing and withdrawing ETH or LST from EigenLayer and minting/burning Liquid Restaked Tokens (LRT). Therefore, using LRT involves risks associated with liquidity restaking protocols. Additionally, restaking protocols issue more LST, such as Puffer's pufETH, KelpDAO's rsETH, which, compared to traditional LSD (e.g., stETH), are more complex in contract logic and are more susceptible to asset loss due to LST detachment or project RUG.
Apart from the EigenLayer protocol itself, most other Restaking protocols have not yet implemented withdrawal logic. Early participants can only obtain some liquidity through secondary markets, leading to potential losses due to insufficient liquidity. Moreover, EigenLayer itself is still in its early stages (Stage 2), so futures functionalities (such as StrategyManager) may not be fully developed. Early participants need to be aware of these risks.
Potential Projects in the Restaking Track
KelpDAO
A Restaking ecosystem project developed by the LSD project Stader Lab, belonging to the Liquid-LSD Restaking category, currently open for deposits of stETH from Lido and Stader's ETHx LST tokens. However, due to the full quota of EigenLayer LST, deposits are currently suspended. Users depositing into KelpDAO will receive EigenLayer point rewards.
Renzo
Unlike KelpDAO, Renzo is a product belonging to the Liquid Native Restaking category, which means it can still accept deposits without being subject to the EigenLayer LST deposit limit. However, withdrawals of ETH deposited into Renzo are temporarily unavailable, and the collateral token ezETH cannot be transferred, resulting in a short-term lock-up.
Swell Network
A well-established LSD protocol entering the Liquid Restaking field, also belongs to the Liquid Native Restaking category. As Swell has not issued tokens and has an airdrop expectation, its LST token swETH has gained popularity among many airdrop hunters. Currently, it ranks as the second-largest staked asset in EigenLayer.
ether.fi
Similar to the above two projects, ether.fi is also a product of the Liquid Native Restaking category. It received a $5.3 million seed round financing led by BitMEX founder Arthur Hayes. Unlike LIDO, ether.fi adopts a decentralized, non-custodial method to stake ETH and announces the provision of restaking services. As it is native ETH restaking, it is not affected by the EigenLayer LST quota and can still accept deposits. Its collateral token eETH (wrapped token weETH) is also one of the few liquid LRT collateral tokens.
Puffer Finance
Puffer Finance is a liquidity staking protocol that is anti-slash, similar to ether.fi, also belonging to the Liquid Native Restaking category. It has not yet opened for staking. Puffer Finance has received a seed round financing led by Jump Crypto, totaling $6.15 million, with an undisclosed valuation.
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