*Airdrops/Research — Eth Restaking*
Liquid restaking tokens(LRT) have become a popular way to double dip on airdrop point farming as part of the Eigenlayer narrative. These protocols have been capturing a lot of attention as the point systems serve to secure positioning in advance of Eigenlayer actively validated services(AVS) being released and actual value being generated. We’ll go over the Eigenlayer stack, the basics of restaking, LST restaking versus native restaking, and touch on the LRT protocols that exist today.
LST — Liquid Staking Token — Lido, Rocketpool — Eth + staking yield
AVS — Actively Validated Service — Service run on Eigenlayer
LRT — Liquid Restaking Token — Kelp, Etherfi, Renzo — Eth + staking yield + yield from actively validated services rewards
TVL — Total Value Locked — Metric for a protocol’s “success”
Eigenlayer is a way of reusing staked Eth to provide other services besides the security services it’s used for on the Ethereum blockchain. When Eth is staked on a validator, if that validator breaks the rules of the system the Eth at stake is susceptible to a slashing penalty. This is one of mechanisms that aligns the best interests of validators with that of the network. Eth is now a relatively strong and trusted asset which has network effects making it highly desirable. Eigenlayer is offering a platform for developers to leverage that trust network. Instead of launching a tiny market cap coin that could be easily manipulated, developers can launch on Eigenlayer and use Eth to secure their services. People with Eth can stake to secure the Ethereum network as well as subscribe to additional slashing conditions and secure these other services in exchange for extra yield in the form of fees, governance tokens, whatever the service has to offer as incentive. These services built on top of Eigenlayer are known as actively validated services(AVS).
How someone contributes their Eth to Eigenlayer can be achieved two different ways. You can restake natively where you provide Eth and it’s placed on either your own validator or validators run by some third party and the withdrawal keys are set to Eigenlayer. You can think of withdrawal keys as the right to slash your assets. The other option is to provide an existing liquid staking token. Liquid staking tokens came about as a market solution to people wanting access to staking yield on Ethereum, but not wanting to have to run their own validator. The barrier to entry to receive staking yield, while being long Eth, was too high. In response services such as Lido launched that are responsible for running the validators. People deposit their Eth and receive StEth(Lido’s liquid staking token) in return, which represents their claim on the Eth that Lido is staking for them. In the context of Eigenlayer, the StEth can be restaked and slashed which would then rely on Lido to handle the underlying Eth slashing.
With Eigenlayer currently there are no caps on native restaking. There are caps on how much of each existing LST you can contribute. Right now, the liquid restaking services will restake your Eth on Eigenlayer for you with the long term goal that they will eventually manage what AVS’s your capital is subscribed to and take a cut for their efforts. In the meantime though, they’re dishing out those sweet sweet points as they jockey for TVL and the narrative high ground. There are three options for LRTs currently. KelpDAO is the only one that lets you restake existing LSTs which means Eigenlayer is functionally capping their TVL growth. Personally I like restaking with LSTs because it adds an additional layer between the slashing risk and actual Eth asset. Theoretically everything will be automated, but right now having another party in the form of an LST issuer seems prudent since Eigenlayer is so experimental. The other two live protocols are Renzo and Etherfi, I dont see much difference between them, they’re both a native restaking option. Etherfi has much better documentation and has been around longer, but they’ve both got points and big dreams. All three of these options are starting to build out their defi integrations to try and provide liquidity depth for their asset. They’re all juicing the yields on various platforms with extra point rewards if the double dip of eigen points plus the LRT points are not enough for you.
There’s a lot of speculation on the dangers of Eigenlayer and the rehypothecation of Eth, but I’d like to take a more practical look at LRTs. We’re in such a heavily point driven airdrop meta that multiple LRT protocols have launched and and begun claiming mind share and TVL when their fundamental purpose is to automate the management of AVS subscriptions to optimize yield. Subscribing to a single LRT currently presumes that the team or dao will have a strategy that they implement to manage the restaked Eth to optimize yield. This would functionally replace LSTs with LRTs where instead of making staked Eth liquid, it’ll make restaked Eth for a particular management strategy liquid. That’ll pair with liquidity pools on Curve or wherever and I imagine it’ll look the exact same as current LSTs. Which begs the question why wouldn’t existing LST’s move into this space if it’s profitable and they already control a substantial amount of Eth? It seems unlikely that they’d allow someone else to use their asset/receipt token to take another cut. Then there’s the alternate approach that we’ve seen commonly within defi that I think will align more to user needs when it comes to subscribing to AVS’s. That would be a vault structure. Where a protocol would offer vault products that are high, medium, and low, risk restaking strategies. Or if we wanted to get really sophisticated an LRT could mimic the Curve ecosystem where the LRT controls however much Eth and then accepts bribes to route security. The point is there’s a lot of time for innovation between now and active AVS’s being deployed and restaked positions being managed. I think there’s a lot of ways this could develop that diverges from how all these LRT protocols are building currently.
There’s almost two billion dollars in Eigenlayer because it’s a super easy airdrop farm. All it is asking is that you hold Eth, which is exactly what a lot of people want to do anyway. The airdrop meta fueled by points systems has provided these unbuilt protocols a way to claim space ahead of any services actually being live on Eigenlayer, which is a fascinating development in this speculative point mania. I think there’s a bunch of ways this could play out so I’ve got some exposure, but I feel like all these LRTs could be out-innovated before Eigenlayer even launches. For that reason I wont be participating in any defi with my LRT tokens because I dont want some quick shift in the market to change the assets I’m holding via a liquidity pool. At its core this is yet another infrastructure narrative for Ethereum, which also makes me worried because while infrastructure can limit adoption it doesn't drive it. Overall, a bit of point double dipping is probably worth the risk if you’re moving with enough size and long Eth. I think the ground could move under our feet really quickly with this LRT narrative, but it’s too easy and popular not to be in it.
