Exploring The Potential of Liquid Restaking Tokens

The DeFi landscape on Ethereum experienced a significant revival following the announcement of EigenLayer. Promising additional yields on both Native and Liquid Staking Tokens (LSTs) and hinting at potential airdrops via EigenLayer Points, this development has shifted substantial activity and Total Value Locked (TVL) towards Restaking, Liquid Restaking, and Liquid Restaking Tokens (LRTs).

Surge in Popularity

Analysts predict that by the end of 2024, over 50% of all staked TVL for Ethereum will be validated. This trend is driven by two main factors:

1. Additional Yield Opportunities: users can earn extra yields on top of both staking and restaking rewards.
2. EigenLayer Points: Staking ETH on EigenLayer allows participants to earn EigenLayer points in addition to platform-specific points, as most Liquid Restaking Protocols have their own points systems.

With growing interest, many new Liquid Restaking Protocols are emerging. Our focus will be on some of the largest, including EtherFi, Puffer Finance, Renzo Protocol, and Kelp DAO (Simplystaking).

Staking on Ethereum

Staking on the Ethereum network is foundational, reflecting the commitment of participants who lock a specified amount of Ether (ETH) to validate transactions and maintain blockchain integrity. As of the second part of June 2024, over 32.8 million ETH are staked, supported by 1,025,055 active validators and a backlog of over 2,999 pending validators, according to Beaconcha.in. These metrics should mark the significant scale and importance of Ethereum’s staking ecosystem.

Concept of Restaking

Restaking has gained substantial attention since late 2023. It involves using staked ETH to secure additional protocols, thereby earning rewards. Restaking enhances Ethereum’s security features for a multitude of network applications, such as decentralised applications (dApps), oracles, and layer-2 sidechains, collectively known as Actively Validated Services (AVSs). EigenLayer has been pivotal in implementing this mechanism, transforming Ethereum’s crypto-economic security landscape.

Restaking Innovation and EigenLayer

The innovation of restaking eliminates the need for AVSs to develop their own security infrastructure, leveraging Ethereum’s established security resources. EigenLayer introduced this mechanism, addressing the limitations of liquid staking, and promoting increased decentralisation and security. As Ethereum evolves, restaking reinforces the network’s commitment to advancing the cryptoeconomic security paradigm (Experiment Findings).

Key Players in LRTs

LRT TVL Ranking

A bar chart ranking different LRT protocols by their TVL in billions of dollars below highlights the key players in the space:

• Ether-fi: Leading with a TVL of $6.31 billion.
• Renzo: Second with $3.78 billion.
• Puffer: Third with $1.71 billion.
• Kelp: Fourth with $653.63 million.
• Swell: Fifth with $462.86 million.
• EigenPie: Sixth with $364.47 million.
• Bedrock: Seventh with $165.30 million.
• Prime Stacked: Eighth with $40.44 million.
• ClayStack: Ninth with $14.07 million.
• Inception: Tenth with $2.08 million.
• Genesis: Eleventh with $1.72 million.

(Cryptokoryo) (DefiLlama)

Conclusion
The rise of Liquid Restaking Tokens (LRTs) marks a transformative phase in Ethereum’s DeFi landscape. Driven by the innovative EigenLayer, which offers additional yield opportunities and EigenLayer Points, restaking has become an attractive option for users. The substantial shift in Total Value Locked (TVL) towards restaking protocols underscores the growing interest and confidence in this new mechanism. By the end of 2024, it is anticipated that over 50% of all staked TVL on Ethereum will be restaked. This growth is largely attributed to two factors: the promise of additional yield on staked assets and the incentivisation through EigenLayer Points. The integration of restaking provides enhanced security for a multitude of network applications, allowing decentralised applications (dApps), oracles, and layer-2 sidechains to leverage Ethereum’s robust security infrastructure without needing to develop their own. Key players in the LRT space, such as EtherFi, Renzo Protocol, Puffer Finance, and Kelp DAO, highlight the competitive and rapidly evolving nature of this sector. The rankings of these protocols by TVL demonstrate the diverse and expanding ecosystem within the DeFi space, with EtherFi leading with a substantial $6.31 billion in TVL. In the end, the potential of LRTs is immense, with significant implications for the future of staking on Ethereum. The combination of enhanced yield opportunities, robust security measures, and the growth of key protocols positions LRTs as a pivotal development in the ongoing evolution of decentralised finance.