Author: Hamster; Source: Author's blog
Recently, there has been a wave of Restaking in the market. Many protocols have started staking activities, and the TVL of LRT (Liquid Restaked Token, Liquid Restaked Token) has also shown significant signs. growth, reaching a level of US$1.5 billion. The relationship between LRT and Restaking, its advantages and risks, and the LRT protocols available on the market are all topics worthy of in-depth discussion.
Restaking refers to after the initial staking Pledge assets again. This strategy is mainly based on Ethereum’s security framework and aims to improve the efficiency of fund use throughout the cryptocurrency ecosystem. Through Restaking, stakers can not only support the security of one network, but also provide verification services for multiple networks at the same time, thereby obtaining additional rewards, which is very beneficial for increasing the yield of assets. In short, Restaking opens up a new way for stakers to earn additional income while also enhancing several Network security and stability.
At the same time, a major issue facing Restaking is liquidity. Similar to PoS staking, after Restaking, the assets are "locked" in the node, thus losing liquidity. To solve this problem, Liquid Restaked Token (LRT) was introduced. LRT is a synthetic token issued for Restaked ETH, ETHx or other LST. Not only does it solve the previously mentioned problems, it also allows easy access to Restaking and DeFi at the same time.
LRT is more technically and economically complex than LST. With LST, all underlying tokens are staked for only one task, which is to secure the PoS chain. However, with LRT, there will be multiple AVS (Active Verification Services), i.e. applications and networks that use Restaking to ensure security, that will need to be selected for Restaking, which will result in the distribution of multiple different types of additional rewards.
Therefore, the relationship between LRT and Restaking can be summarized as: LRT is a synthetic token designed to solve the problem of asset liquidity in Restaking. It enables pledged assets to be traded in multiple Provide security support in each service, while bringing additional rewards and returns to stakers.
Liquidity Recollateralized Tokens (LRT) are a new primitive for liquidity in the cryptocurrency market, designed to increase Capital efficiency of assets. In traditional liquidity mining activities, users deposit their crypto assets into a liquidity pool to earn rewards, but these assets are typically not available for further use during the staking period. LRT achieves greater capital efficiency by allowing users to re-pledge already pledged assets, increasing asset liquidity and usage flexibility .
1. Improved capital efficiency : Through the Restaking mechanism, Users can further participate in other pledge projects or lending activities without withdrawing their original pledged assetsNo need to do so Using native tokens to directly establish security, the pledged ETH can protect the security of the Ethereum network and AVS at the same time, thereby improving capital efficiency.
2. Revenue Maximization: LRT allows users to obtain multiple benefits from the same asset, and stakers can earn from verification activities that support multiple services. rewards without tying up additional funds,which not only improves their funding efficiency but also increases the reward income associated with the verification service. Basic rewards include ETH staking rewards, AVS re-staking rewards, and additional LRT utilization rewards.
3. Liquidity enhancement: The LRT protocol solves the liquidity dilemma and standardizes reward and risk allocation by re-pledge the deposited ETH among various operators, It also provides users with a tokenized representation of their re-staking ETH and rewards, allowing them to further utilize these tokens in other DeFi protocols for additional benefits. The introduction of this mechanism helps increase market liquidity, makes assets more active, and is conducive to the prosperity and development of the entire cryptocurrency ecosystem.
1. Increased complexity ：Restaking Add Investors need to understand and manage the complexity of not only the basic staking and earning mechanisms, but also how to effectively re-stake assets on multiple networks to maximize returns, which can be a challenge for novice investors. In addition, the introduction of LRTalso involves the selection and evaluation of multiple different AVS, and how to allocate staking assets between them to obtain the most optimized reward structure.
2. Smart contract risks: The implementation of LRT relies on the interaction of multi-layer smart contracts. Every additional layer of smart contracts is theoretically New security vulnerabilities or flaws may be introducedwhich could lead to the theft or loss of assets. The complexity and interactivity of smart contracts makes comprehensive auditing and verification more difficult, increasing the technical risks faced by investors.
3. Liquidity risk: Although LRT aims to improve liquidity by providing representative tokens for re-hypothecated assets, under extreme market conditions (such as severe volatility or panic selling), the liquidity of these assets may still be severely affected. Most LRT protocols, easy in, hard out. In these cases, rehypothecated assets may be difficult to quickly convert into liquidity, thereby increasing exposure to liquidation risk.
4. Governance risk: Due to the complexity of the LRT protocol at the technical and economic levels, its governance structure and decision-making process are also relatively complex. This complexity can lead to inefficient governance or enable a few interest groups to manipulate protocol decisions for their own benefit, to the detriment of a broad swath of holders. In addition, the need for re-staking selection for multiple AVS further increases the complexity and difficulty of governance, which may lead to opacity in governance decisions and an increase in the threshold for participation.
In summary,LRT, as a financial innovation, while improving capital efficiency and increasing profit potential, also brings higher risks and management complexity. Investors need to carefully evaluate their risk tolerance and investment strategies before participating to ensure they fully understand the relevant mechanisms and potential risks.
1.Eigenlayer：Track leading project, built on Ethereum, introduces a new primitive in cryptoeconomic security - restaking. This primitive allows ETH to be reused on the consensus layer. Users who stake ETH natively or stake ETH using LST can choose to join the EigenLayer smart contract to re-stake their ETH or LST and extend cryptoeconomic security to other applications on the network to earn additional rewards.
2. Kelp DAO: A multi-chain liquidity staking platform, Kelp DAO was launched by former members of the Stader Labs team and currently focuses on EigenLayer The LRT solution rsETHis built to provide liquidity for illiquid assets deposited into restaking platforms such as EigenLayer. Currently, Kelp DAO does not charge any fees for LST deposits. This means that users are currently free to deposit ETHx, sfrxETH and stETH on the Kelp dApp without incurring any fees.
3. Restake Finance: It is the first protocol to launch modular liquidity staking on EigenLayer, and proposes a decentralized yield re-mortgage method. , allowing users to earn Ethereum staking rewards and EigenLayer native rewards without locking up assets or maintaining staking infrastructure. Restake Finance will be powered by the Restake Finance DAO, which will ensure that the project stays true to its decentralized nature and that its development is in the interest of its stakeholders. The DAO will be managed using RSTK tokens, with the core goal of creating value for token holders through governance and generating revenue.
4. Renzo Protocol: The first native re-pledge protocol launched on the EigenLayer mainnet. Provides an interface for restaking on EigenLayer, thereby removing technical barriers, resource allocation and risk management. This in turn enables the creation of new primitives and design considerations for AVS applications, promoting open innovation and the flexibility to build open distributed systems.
5. Puffer Finance: The first native liquidity staking protocol on Eigenlayer, which makes native re-staking on Eigenlayer easier Access, allowing anyone to run an Ethereum PoS validator while increasing their rewards. Together, stakers and node operators create a flywheel effect that allows Puffer to grow faster than traditional liquidity staking protocols. However, to ensure that Puffer never poses a threat to Ethereum’s trusted neutrality, the Burst Threshold caps Puffer at 22% of the validator set.
6.etherFi: Decentralized, non-custodial entrusted staking protocol with liquidity staking derivative tokens. A distinctive feature of ether.fi is that stakers control their private keys. The ether.fi mechanism also allows the creation of a node services market where stakers and node operators can register nodes to provide infrastructure services, with revenue from these services shared with stakers and node operators.
7. Swell Network: Non-custodial staking protocol, launched rswETH. With Swell, users can earn passive income by staking or re-staking ETH to obtain the blockchain Rewards and re-earned AVS rewards, in return users can receive profitable liquidity tokens (LST or LRT) to hold or participate in the broader DeFi ecosystem to earn additional income.
8. Stakestone: Full-chain LST protocol designed to bring native staking benefits and liquidity to L2 in a decentralized manner. With its highly scalable architecture, StakeStone not only supports leading staking pools but is also compatible with upcoming re-staking. At the same time, it established a multi-chain liquidity market based on STONE. StakeStone pioneered the first decentralized liquid staking solution through an innovative mechanism called OPAP. Unlike traditional methods that rely on MPC wallets, StakeStone provides complete transparency of underlying assets and yields. At the same time, OPAP allows the optimization of STONE’s underlying assets, ensuring that STONE holders can automatically and easily obtain optimized staking benefits.
9. Babylon: "The Eigenlayer of the BTC Ecosystem", Babylon is completely changing the way we expand Bitcoin, and it does not rely on adding new layers on top of Bitcoin. Or build new ecosystems. Instead, it extracts security from the Bitcoin chain and shares it with various PoS chains. Babylon is developing a Bitcoin staking protocol that allows Bitcoin holders to stake their BTC on the PoS chain and earn income from staking (and re-staking) their BTC to secure PoS chains, applications and application chain security. Unlike existing methods, Babylon’s innovative protocol eliminates the need for bridging, encapsulating, pegging or escrow for staked Bitcoins.
10. Picasso: Aims to introduce the concept of restaking into the Solana blockchain, allowing stakers to stake in Solana and other networks through a liquidity re-pledge method similar to EigenLayer to reuse their assets for staking to obtain additional income. The protocol is particularly focused on leveraging cryptoeconomic security to provide additional safeguards for different decentralized applications and services. In this way, Picasso not only increases the liquidity of assets, but also promotes the overall security and stability of the network through shared security mechanisms.
These projects demonstrate the diversity and innovation in the LRT field, while also pointing out the potential and development direction of the re-hypothecation market. When choosing to participate in any of these projects, it is recommended that a detailed study of their respective features, risks and potential benefits be made in order to make an informed investment decision.
The introduction of LRT marks an innovative leap in the field of crypto asset staking, by unlocking the liquidity of staked assets, LRT allows these assets to be re-staking across multiple networks and services for additional yields, improving Capital efficiency and earnings potential.
However, like all innovations,LRT comes with risks, including increased technical complexity, potential security vulnerabilities in smart contracts, and the impact of market volatility. Investors need to have an in-depth understanding of these risks before participating and formulate corresponding risk management strategies to ensure that they can effectively control potential losses while pursuing returns.
The next direction may be to integrate and develop with the Rollup paradigm, acting as a wingman to provide Rollup with DA, shared sequencers, high-security oracles, unified cross-domain liquidity, ZK coprocessors and other services.
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