Our investment in Ether.fi, the leading liquid restaking protocol
By Sep Alavi, General Partner, Marthe Naudts, Associate, and Robin De Baets, Associate
Over the past year, a new primitive has taken the Ethereum ecosystem by storm: restaking.
Restaking enables crypto infrastructure such as data availability layers, oracles, and DeFi apps to leverage the value of staked ETH for their economic security in exchange for protocol fees and rewards, giving additional utility to the world’s second-biggest digital asset beyond securing the Ethereum network.
The idea of restaking is similar to traditional staking on Ethereum: node operators pledge their staked ETH to help validate and operate applications called Actively Validated Services (AVS). If they operate by the rules of the AVS, they will be rewarded, if they do not, their pledged stake ETH can be slashed. This is a new paradigm for crypto, and the huge TVL growth of restaking protocol EigenLayer speaks to user enthusiasm.
Restaking protocols help users restake their ETH without the complexity of running nodes — ie. having to choose which AVSs to run nodes for, and potentially running many in parallel with different yields and risk profiles. In contrast to delegated staking protocols, different restaking protocols can implement different strategies with different yields, risks, and liquidity. EigenLayer, an ecosystem of stakers, node operators, and developers building AVSs using this shared security model has over $10bn total value locked (TVL) in its staking contract currently.
However, locked ETH is illiquid, limiting the utility of staking or restaking because stakers cannot quickly enter and exit positions or leverage their stake as collateral in DeFi protocols. Following EigenLayer’s rapid growth, many liquid restaking token protocols have emerged to offer this solution, totalling over $5.4bn in TVL at the time of writing.
But one stood out to us the most — Ether.Fi.
With over $2.7bn in ETH of TVL at the time of writing this piece, Ether.Fi has the largest adoption rate and TVL growth of any liquid staking token.
This is due to two key features and value propositions that present a fresh approach to staking on Ethereum.
- Unlike other protocols, it allows stakers to delegate while keeping control of their keys and encourages the development of additional services on its delegated staking infrastructure.
Typically restaking involves complex server maintenance and locks up ETH, limiting its use. Liquid staking addresses these challenges by enabling ETH delegation to node operators and providing a tokenized representation for use in various protocols. However, existing liquid staking protocols raise concerns about key control, exposing users to risks.
Ideally, a staking solution should allow users to retain custody of their ETH through key control while offering a liquid staking token for use in different apps. Ether.Fi stands out by ensuring stakers maintain control of their keys, offering peace of mind in case of protocol issues or problems with node operators, and allowing users to reclaim their ether when needed, true to the core principles of decentralised finance.
2. Ether.Fi is run by a team of world-class operators with multiple past successes
Mike, the CEO of Ether.Fi, has already had success in the start-up arena building and exiting TopHat, a market-leading software learning platform used by over 2.5m students in over 750 higher ed institutions in North America and which has raised over $200m. Even rarer than finding this calibre of operator is finding one who carries the deep crypto-native expertise and distribution that Mike brings, which in large part has driven their early mover advantage. Accompanying Mike is Rok, who previously held enterprise sales leadership roles at TopHat and currently serves as Ether.Fi’s Head of Growth.
We’re so excited to be backing this team as part of their $23m Series A funding round. We look forward to supporting them as they continue to scale and revolutionise the crypto ecosystem. You can follow their progress here.
