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DeFi Trends in 2024: Liquid Restaking & LRT

Liquid staking has intrigued investors, and stats prove it. According to Binance Research, overall staked ETH is showing exponential growth due to reduced withdrawals. This can be explained by lower liquidity risks and the growing popularity of LSDfi protocols. Liquid staking overtook DEXes and ranks number one in total value locked (“TVL”) across different DeFi sectors. Now, another big thing is at the doorstep waiting for you to open it up and try — Liquid Restaking.

Liquid Staking vs. Restaking

These terminologies are similar, which may be rather confusing. Let’s outline the main difference between the two narratives.
 

What is liquid staking?

Liquid staking on Proof-of-Stake (PoS) networks allows users to stake network tokens such as ETH or BNB to earn potential yield and provide liquidity for these staked tokens through wrapped tokens. These wrapped tokens are called liquid staking tokens or LSTs, which can be used interchangeably with liquid staking derivatives or LSDs. 

DeFi Trends 2024: Liquid Restaking & LRT2.png

Source: Binance Research

There are three main LST models:

1. Rebasable tokens (e.g. stETH) 

  • Token supply will change algorithmically according to staking rewards or possible slashing penalties. 
  • Pegged 1:1 to the native token. 
     

2. Reward-bearing tokens (e.g. rETH) 

  •  Tokens increase in value over time to reflect staking rewards. 
     

3. Base tokens + reward tokens (e.g., Frax) 

  1. One will be pegged 1:1, and the other will accumulate rewards; 
  2. Frax: base — frxETH and reward — sfrxETH. To swap your crypto to get them, use the Notum app.

In essence, with liquid staking, you have full access to your funds at any time, and you can unstake them without any effects. Among strong liquidity staking sides are increased capital efficiency, opportunities for yield farming, and stronger network security with more staked network tokens.

To learn more about liquid staking, read our related article.

 

What is liquid restaking?

Liquid restaking allows users to stake their ETH and support validation on various networks, including Ethereum and other protocols integrated with a restaking protocol. This approach uses Ethereum’s security layer to boost capital efficiency throughout the crypto ecosystem, allowing stakers to earn additional rewards for their validation services.

DeFi Trends 2024: Liquid Restaking & LRT7.jpg

Source: Entangle

When restaking, users can deposit their tokens, including those used in liquid staking, allowing them to gain additional profit and invest in other DeFi projects. The restaking concept is close to pooled PoW mining, where miners can simultaneously mine two or more cryptocurrencies without losing the overall hash rate. 

Restaking with EigenLayer

EigenLayer is a recognized pioneer in restaking. The protocol allows users to re-stake their LSTs or ETH to secure other apps and extend crypto economic security for earning additional rewards. EigenLayer has raised a total funding of $64.5M over 2 rounds from 18 investors, showing a high interest in this project among key players.

Source: DefiLlama

EigenLayer allows creation without needing modifications and maintaining its own network of validators. This avoids the need for high rates of token measurement to incentivize security or the need to launch native tokens at all. This way, developers can focus on specific innovations without deploying an entire technology stack from scratch to innovate on just one part of it.

If you’re interested in this project, you can dive deep into our article about EigenLayer.

EigenLayer: pros & cons

The EigenLayer protocol has some evident advantages:

  1. Increased safety. That’s a chance to increase economic security due to implementing new AVS with existing Ethereum validators;
  2. Capital efficiency. Boosting the financial value of all networks involved;
  3. Balancing costs. The costs of improving Ethereum security are balanced by being shared among several AVS;
  4. Stronger security. Increasing costs of potential hacks as the system becomes more global and strong.

Among EigenLayer’s major drawbacks are:

  1. Single point of failure. If EigenLayer is attacked with a substantial amount of staked ETH, the main network would be at great risk.
     
  2. Centralization risks. If many stakers are responsible for one application's security and are subject to penalties, this could have negative consequences for Ethereum.
     
  3. Risks for profitability. The protocols use Ethereum to ensure their security. However, stakers on EigenLayer may select the highest returns to maximize their profits, which could lead to a race to raise capital between protocols.
     
  4. Fines. Protocols can change conditions, reducing penalties to attract more capital and thereby undermining their own security.

How to restake crypto

There are four main options to start re-staking. 

DeFi Trends 2024: Liquid Restaking & LRT1.jpg

Source: Messari

  1. Native Restaking: Validators re-stake their staked ETH;

     
  2. LSD restaking: Users re-stake assets that are already staked through liquid staking providers, such as LidoRocket Pool, etc.;

     
  3. LSD LP Restaking: Users restake the LP token of a pair, which involves a liquid staking ETH token;

     
  4. ETH LP Restaking: Users restake the LP token of a pair that consists of ETH.


 

LRT protocols to watch out for

What other protocols have already leveraged restaking? There aren’t many at the moment because the concept is relatively new, but here are some promising protocols in the restaking space.

— Kelp DAO

Kelp DAO, a multichain liquid staking platform with $180M+ in TVL, was launched by Stader. The platform’s main focus is building Liquid Restaking Solutions for public blockchain networks. The Kelp DAO is currently building an LRT solution, rsETH, on EigenLayer for Ethereum.

DeFi Trends 2024: Liquid Restaking & LRT8.png

Source: Kelp DAO

Kelp’s rsETH is a Liquid Restaked Token (LRT) that provides liquidity to illiquid assets deposited into such restaking platforms as EigenLayer. 

— Ether.fi

Ether.fi is a decentralized and non-custodial staking protocol with a Liquid Staking Derivative (LSD) token. The protocol has some distinctive features, including the following ones:

  1. Stakers generate and hold their own staked ETH keys;
  2. All validators that are launched via Ether.fi get an NFT. (style)


Ether.fi allows users to create a node services marketplace for stakers and node operators to enroll nodes and provide infrastructure services. Rewards from these services are spread among stakers and node operators.

DeFi Trends 2024: Liquid Restaking & LRT3.png

Source: Ether.fi 

— Renzo

Renzo is a strategy manager for Eigenlayer and guides users on how to manage their restaking strategy within EigenLayer.

Renzo's ezETH is the liquid restaking token that represents a user's restaked position, and users can deposit liquid staking tokens (stETH, rETH, and cbETH) in exchange for ezETH. By depositing their liquid staking tokens with Renzo, users can surpass the liquid restaking limits on EigenLayer and earn EigenLayer restaking points.

DeFi Trends 2024: Liquid Restaking & LRT5.png

Source: Renzo Protocol

All three protocols have their own point system: Kelp Miles, EtherFi points, and Renzo ezPoints. So, to get those points, you would need LSTs like ETHx (Stader) or stETH (Lido), which you can easily find and swap on the Notum app.

Liquid Staking & Liquid ReStaking Tokens

Liquid Staking Tokens (LSTs) represent the staked amount of Ethereum (or any other PoS blockchain token) and the coherent rewards. LSTs’ major advantage is providing liquidity to the user and allowing them to keep some level of access to the assets without losing the benefits of staking. 

Liquid Restaking Tokens (LRTs) are derived from the EigenLayer restaking primitive, which involves an ETH or ETH LST and the corresponding staking and restaking rewards.

DeFi Trends 2024: Liquid Restaking & LRT4.png

Source: EigenLayer

LRTs tokens bridge restaking and DeFi.  So, LST providers create liquid representations of restaking positions and manage them through governance gating. This grants LST providers to create well-defined risk profiles, empowering users to properly manage their portfolio of restaked assets and initiate enhanced versatility. The following approach gives restakers an opportunity to participate in DeFi while still getting the benefits of restaking.

Benefits of restaking

Restaking has some strong advantages in the DeFi space. 

  1. Economic security for protocols:
    Thanks to the Address Verification Service (AVS) it is possible to level up economic security with already existing validators.
     
  2. Higher financial value: 
    All participating networks get higher financial value.
     
  3. More flexibility for protocols:
    Protocols can solely focus on their application-level choices while having total control over consensus and slashing conditions.
     
  4. Boosted capital efficiency:
    Restaking makes it possible for stakers to earn rewards from validation activities supporting several services without allocating additional capital. 
    This enhances their capital efficiency, and rewards accumulate from validation services.

Risks of liquid restaking

As with any investment idea, restaking has some inherent risks.  

  • Operator collusion: Validators being in collusion and using the same restaked ETH could try to hack a network and take control of its TVL.
     
  • Centralization: Validators with substantial computational power may control the restaking space in multiple networks.
     
  • Overloaded Ethereum: Vitalik Buterin’s concern is that the chain’s consensus will be overloaded.

 

Final Thoughts

Liquid restaking is definitely a buzzword in the DeFi space. It led to some innovations, such as launching projects like EigenLayer and KelpDAO that democratize access to restaking through their LRT solutions.

Integrating restaking into Ethereum's ecosystem is a prominent milestone in offering a more capital-efficient model that overcomes barriers to entry for new LED projects and improves the security of existing protocols. Restaking shows the way for more flexible, decentralized innovation developed on Ethereum. 


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📖 Disclaimer: Notum or Tangem does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.
 

FAQs: Liquid restaking

  1. What is restaking?

    Restaking is a new DeFi narrative aimed at boosting capital efficiency. Users can stake the same tokens on the main blockchain and other protocols, securing several networks simultaneously. Restaking brings users additional rewards for securing additional protocols.
     
  2. How does restaking work?

    Restaking allows users to stake the same ETH on both Ethereum and other protocols, securing all of these networks simultaneously. Hence, restaking allows for the leverage of existing trust networks.

    However, when users opt-in to re-stake their ETH, they are exposed to increased slashing risk. As a result, restakers are compensated with higher staking rewards for undertaking more risk.

     
  3. What are the most popular restaking platforms?

    Currently, there aren’t many staking protocols out there. Restaking is a new concept in the DeFi market and is gaining popularity. A few protocols associated with restaking include Kelp DAO, Ether.fi, and Renzo.

     
  4. What is LRT?
    Liquid Restaked Tokens (LRT) unleash this liquidity potential and introduce an additional layer of leverage to maximize yields. Users can deposit LRTs through a Liquid Restaking protocol. 
     
  5. How to restake ETH?

    Here's how to restake your ETH: Set up a Web3 wallet. Connect to the Eigenlayer app. Choose a restaking method. Confirm your deposit.

     
  6. What is EigenLayer?

    EigenLayer is a protocol built on the Ethereum network introducing a new revolutionary “restaking,” primitive. It opens up access to the Ethereum staked capital base and decentralized validator set.