What is the Best Liquid Restaking Token (LRT)?
Introduction
Restaking has taken hold as the main narrative for this DeFi cycle. If you are looking to be a part of this new idea of just trying to boost your ETH yield, you have to navigate your way through multiple projects. So which one is best?
Understanding Liquid Restaking
Most crypto networks are based on Proof of Stake (PoS) compared to Proof of Work (PoW). PoS is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. Users who are a part of this consensus are usually called validators. They “stake” their crypto as collateral in case their validator makes any mistakes but they are also rewarded when making successful blocks.
Liquid staking came along as a way to allow users to “unlock” their staked tokens while also receiving yield from the underlying staked asset.
Rocket Pool for example, allows users to spin up their own validators through Rocket Pool or to simply stake your ETH in return for rETH. In the backend, Rocket Pool will stake the newly deposited ETH into one of their pools to immediately start earning yield. All yield (i.e. earned ETH) is compounded back into the pools or traded for rETH and burned. This is why the rETH to ETH ratio increases over time because ETH is earned over time.
One year ago, Eigenlayer produced a white paper going one step further by allowing you to “restake” your staked ETH. Basically, EigenLayer is a set of smart contracts on Ethereum that allows consensus layer ETH stakers to opt in to validating new software modules built on top of the Ethereum ecosystem. By software modules, they are talking about consensus protocols, data availability layers, virtual machines, keeper networks, oracles networks, bridges, threshold cryptography schemes, and trusted execution environments — i.e. everything.
Collateral has become one of the main security mechanisms to protect a network and restaking is just adding to it. Liquid restaking is just the tokenization of restaking, similar to liquid staking tokens. Liquid restaking tokens are floating around DeFi and can already be used as liquidity pool providers. It is just a matter of time before these tokens can be used as collateral for other networks.
You can find out more about potential problems with restaking here.
Best Liquid Restaking Tokens
The top five liquid restaking tokens (LRTs) on the market right now are Ether.fi, Renzo, Puffer, Kelp, and Swell. There are more protocols out there but these five are the largest on the market. All five of these protocols do relatively the same thing — deposit into Eigenlayer and give you a token that represents that stake. There is slight differences but overall the functionality is the same. This is why we will focus on other aspects to determine which LRT is the best.
Most Total Volume Locked (TVL)
You can find the marketcaps here. Keep an eye out as the numbers change drastically depending on funding rounds and incentive programs.
Best Yield
- Ether.fi — 3.38%
- Renzo — 3.26%
- Swell— 3.15%
- Puffer — 3%
- Kelp — 1.91% (from the website but seems off since basic ETH staking is getting 2.9%)
Most LRTs are hovering around the standard ETH staking rate since Eigenlayer is just starting to spin up restaking protocols to boost the yield. But for now, Ether.fi and Renzo are on top again.
Safety
Safety/security is quite subjective but I’ve based my criteria off the notoriety of the VC’s backing them, how old the company, where they are in funding, latest funding amount, and # of investors. I was able to get all of this info from pitchbook.com. This is a much easier approach since most of the LRTs are the same and we want to make sure there is quality backing each project.
Puffer Finance is #1 this time because of the number of investors and the quality of VCs backing them. Ether.fi is right behind them with a higher funding round but less well known VCs and less investors. Swell was put below Renzo because the funding and investors was probably based off of Swell Network / Swell Labs rather than the protocol itself. Therefore, Renzo was considered higher than Swell.
Yield from Airdrops
This is a guessing game but we can make an educated guess based off the size of the company and if they’ve already done an airdrop. The expectation is the higher the valuation of the company, the higher the value of the token. The counter to this argument is protocols may use increased airdrops to incentivize staking in their protocols. Overall, the focus should be on the remaining supply of tokens that still need to be airdropped and valuation of company.
- Puffer Finance — no airdrop yet
- Swell — no airdrop yet
- Ether.fi
- Kelp — no airdrop yet
- Renzo
All of these LRTs offer bonus points for leveraging your tokens through Pendle or other DeFi products. Just make sure you understand what is happening when you are “leveraging” the position. Not all DeFi protocols leverage the same way.
Conclusion
Based on the criteria above, Ether.fi is the best choice because it is the largest LRT on the market with the best APY. Now a days, airdrops are less important as protocols extend the airdrops to multiple seasons to keep people invested. Stick to projects that are #1 and you are less likely to have any problems.
Bonus: I did not talk about Karak but this is the next iteration of LRTs with the ability to “restake” any asset as collateral. This was the logical conclusion of restaking restaked assets (let the looping begin!). Hopefully there will be some sandbags put in place to slow down the leveraging of the whole system.
-Just Another Crypto Analyst
Doing this for fun but if you want to leave a tip:
Ethereum: 0xa33aE4207466cD866D13fA587067B1F824C06d4A
Solana: 6bYE5H4qXW5oa8Y1Jxk7zXZXSaJGHGhcrV3UUPCejzXF
Cosmos: cosmos1uv0cu8mcmpdcfdemt28aej6zxw8vrr4kmdd5gr
