Liquid Staking Tokens vs Liquid Restaking Tokens
1. Introduction: Ethereum Validators and Staked Ether
The Ethereum network has achieved a significant milestone, surpassing one million active validators who have collectively staked approximately 34 million ETH. This represents about 28% of the total Ethereum supply. Validators play a crucial role in securing the network by validating transactions and maintaining the integrity of the blockchain through its proof-of-stake (PoS) mechanism (Blockonomi).
2. Potential of Staking
Staking on Ethereum offers several benefits, including enhanced security, decentralisation, and financial incentives for participants. Validators earn rewards in ETH for their contribution, which encourages more participants to join the network. The rise of staking pools, such as Lido, has further democratised access by allowing smaller users to pool resources and participate in staking. This growing interest in staking is reflected in the substantial queue of validators awaiting entry, representing significant unstaked Ether ready to join the network (CryptoSlate).
3. Liquid Staking Tokens (LSTs)
Liquid Staking Tokens (LSTs) offer a liquid solution for Ethereum stakers, allowing them to stake ETH and receive a token (LST) in return. This protocol stakes to ETH validators and the LST represents ownership of staked ETH plus the Ethereum network rewards. These tokens can be deposited with platforms like EigenLayer for further use in restaking (CoinDesk). LSTs are widely adopted, with liquid staking protocols holding a total value locked (TVL) of over $52.9 billion (Cointelegraph) (DefiLlama)
4. Liquid Restaking Tokens (LRTs)
Liquid Restaking Tokens (LRTs) provide a liquid solution for those involved in the EigenLayer ecosystem. Users deposit an LST and receive an LRT in return. The LRT service then deposits the LST to EigenLayer, and the LRT represents the deposited LST plus EigenLayer points and other incentives. LRTs also pick Actively Validated Services (AVSs) on behalf of the holders (Liquid Collective). The cumulative TVL for LRTs is approximately $14.8 billion, with EigenLayer being a major player in this space. The Restaked Ratio is also growing each time. (Dune)
5. Similarities and Differences
Similarities:
Both LSTs and LRTs aim to enhance liquidity and flexibility for staked assets, allowing them to be utilised in multiple DeFi applications, generating rewards.
Differences:
- Functionality: LSTs provide liquidity and flexibility, while LRTs offer additional earning opportunities by allowing staked assets to support AVSs.
- Use Cases: LSTs are primarily for liquidity, whereas LRTs enable participation in multiple protocols, thus expanding the potential earning avenues. (Liquid Collective)
In conclusion, both Liquid Staking Tokens and Liquid Restaking Tokens represent significant innovations in the DeFi landscape, providing increased liquidity and earning potential for staked assets. As the ecosystem evolves, understanding these token types is crucial for users seeking to optimise their staking strategies.
Chi Protocol v2 and LRTs: The upcoming Chi Protocol v2 will also include Liquid Restaking Tokens (LRTs) in its offering, stay tuned!
