Relayer Capital’s Ether.Fi Thesis
Over the past several months, we have witnessed the early stages of a paradigm shift in the utility of ETH, restaking. Restaking has broadened the surface area of what Ethereum can enable and has created a new DeFi economy. Eigenlayer (the dominant restaking protocol) now has over $11B in TVL, and growth is showing no signs of abating.¹ When Ethereum shifted from Proof of Work to Proof of Stake, Lido and RocketPool became core infrastructure with their innovative LST (liquid staking token) design. LSTs enable users to secure Ethereum and earn the associated staking yield, while at the same time retaining instant buy/sell liquidity, and composability to deploy their staked ETH across DeFi. Liquid staking today represents the largest category in DeFi by TVL at over $58B.²
We are seeing a similar transformation today, with several innovative protocols building new infrastructure to drive forward Ethereum restaking via native liquid restaking. EtherFi stands at the forefront of this development in liquid restaking. The protocol is building at several key layers, positioning EtherFi to serve as core and durable enabling infrastructure for crypto. I am incredibly proud to have backed Ether.Fi in their $23MM Series A round, and look forward to supporting the team over the long term as they build out their vision!
What is restaking? Restaking enables crypto infrastructure such as DA layers, oracles, and DeFi apps to leverage the value of staked ETH for their own economic security. This transforms the utility of the 2nd largest crypto asset by market cap and gives it additional utility beyond securing Ethereum itself. The result is more economic security to a wide variety of infrastructure and applications, and increased yield to ETH stakers as payment for this service. There are a few ways Ethereum stakers can deposit in Eigenlayer:
- By depositing beacon chain staked ETH. However, this has the drawback of not having liquidity to buy, sell, or use in DeFi.
- By depositing via an LST. However, this presents additional risk to the AVS (Actively Validated Services) since the staking withdrawal credentials point to the liquid staking protocol, not directly to the Eigenlayer contracts. Deposits have traditionally been capped from LSTs to help mitigate and minimize this additional risk.
- By depositing via a native LRT (liquid restaking token). LRTs have all the advantages of an LST from a liquidity and composability perspective, but do not present additional risks since the withdrawal credentials point directly to Eigenlayer contracts. Since there is no resulting stacked risk as with LSTs, deposits to Eigenlayer via native LRTs are uncapped.
Ether.Fi’s eETH has quickly emerged as the leading LRT with 820K ETH of TVL (nearly $3B), more than 2x the TVL of the next highest protocol.³ Ether.Fi has achieved this by creating the most comprehensive product offering in the vertical, with the following core features:
- Focusing on native restaking in its core design, allowing for better alignment with AVS’s and uncapped usage
- A permissionless and decentralized staking protocol design where users can stake a 2 ETH bond to run a validator or validate via DVT without having to provide the 2 ETH bond
- Making eETH the most widely integrated LRT in DeFi, across AMMs, structured products, and money markets
- An incredibly approachable and versatile product offering designed for both advanced crypto users and newer users alike, with a tokenomics structure that makes early users true partners and long term stakeholders of the protocol
Ether.Fi is led by a truly exceptional team. The Ether.Fi team combines attributes that have set them up as early market leaders, but also positions them to remain at the forefront of crypto infrastructure. The team led by Mike Silagadze, Rok Kopp, and Jozef Vogel are proven builders, with experience building lasting businesses in both Web2 and Web3. They are deeply technical, yet also have a keen sense for tokenomics, community building, and cross protocol business development. The team is long term oriented and mission driven, with an ambitious plan for product expansion leveraging their current positioning to address several other key market needs.
Ether.Fi has already established itself as one of the leading protocols driving the Ethereum ecosystem forward. Nevertheless, I believe this is just the beginning of the impact Ether.Fi will have on both this new paradigm of restaking, and on crypto infrastructure as a whole. I am thrilled for Relayer Capital to be one of Ether.Fi’s early backers and look forward to supporting the protocol over the years to come.
Endnotes
- https://defillama.com/, as of 03/17/2024
- https://defillama.com/categories, as of 03/17/2024
- https://defillama.com/protocols/Liquid%20Restaking, as of 03/17/2024
- https://defillama.com/protocol/ether.fi, as of 03/17/2024
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