A series of derivative protocols arising from Ethereum’s PoS staking has recently reached another peak. Known as the Liquid Restaking Protocol (LRT), in conjunction with the restaking project EigenLayer, it has opened up another battlefield for DeFi players to improve fund efficiency and anticipate airdrop points, all centered around the LRT (Liquid Restaking Token).
Let’s start with Ethereum’s staking service. Among all the Ethereum PoS staking service providers, including exchanges and on-chain protocols, Lido has the highest market share, accounting for 31.7% before the deadline, with a total of 9.46 million ETH staked on Ethereum (valued at approximately $21.7 billion). Coinbase comes in second with 14.5% market share, showing the difference in scale.
Lido provides Ethereum staking services to the community, sharing staking rewards and also providing liquid staking certificates called stETH, allowing users to unlock the liquidity of their staked ETH. Protocols like Lido are also known as Liquid Staking Protocols.
When stETH was introduced, there were many different applications attempted, such as using it as collateral for stablecoins, participating in interest rate trading protocols, and including it in investment portfolios. However, it did not bring significant network effects.
It was not until EigenLayer’s discourse emerged that the rationale for “restaking” stETH became more legitimate. (Of course, EigenLayer also accepts tokens from many other staking service providers.) EigenLayer aims to solve the difficulties of establishing consensus networks and the fragmentation of DApp security, in order to serve projects that need to build their own consensus networks, called actively validated services (AVS).
EigenLayer has built a new decentralized network that allows AVS projects to extend Ethereum’s security without having to issue their own tokens or build their own consensus networks, ensuring that using external infrastructure does not compromise the security of DApps.
In this story, along with the anticipation of airdrops through point integration, EigenLayer has already attracted support for restaking of 190,000 stETH, although it still represents a small portion of the total stETH.
Let’s summarize this story from the beginning so you can understand why the Liquid Restaking Protocol emerged:
1. From an ETH holder, you became an ETH staker on Lido.
2. Lido gave you stETH, unlocking the liquidity of your staked ETH.
3. For AVS projects and the anticipation of airdrops, you restaked your stETH on EigenLayer, becoming a restaker of stETH.
4. To unlock stETH, the Liquid Restaking Protocol emerged, allowing you to restake on EigenLayer while enjoying capital liquidity and additional anticipation of airdrops.
The earnings from liquid restaking include ETH staking annualized interest rate, staking service provider bonuses, EigenLayer points, and restaking service provider points, attracting the attention of many people.
For example, Puffer Finance, currently ranked second in Total Value Locked (TVL), is a typical case. It absorbs stETH and recruits restakers for EigenLayer, providing its users with liquid restaking certificates called pufETH. (Note: Puffer Finance’s long-term plan is to launch its own native restaking service.)
On the other hand, the first-ranked ether.fi has its own Ethereum PoS staking service and, along with its own restaking on EigenLayer, provides its users with liquid restaking certificates called eETH, so it does not directly absorb stETH from Lido.
The third-ranked Kelp DAO can accept multiple Ethereum PoS staking services, such as Stader (ETHx) and Lido (stETH), and restake them on EigenLayer, providing its users with liquid restaking certificates called rsETH.
All these Liquid Restaking Tokens (LRT) provide users with points based on their staking amount and duration, and also encourage community activities and team building to earn bonus points and leverage the anticipation of airdrops. For example, Puffer Finance uses many Key Opinion Leaders (KOLs) to attract liquidity and, with the support of EigenLayer’s founder, rapidly increases its TVL.
EigenLayer is aggressively attracting Ethereum’s staking certificates and attempting to use this capital to provide consensus networks for other infrastructures, extending to other blockchains. Therefore, many Layer 2 solutions are declaring partnerships with EigenLayer. It may be because of EigenLayer’s boundless imagination that the Liquid Restaking Protocol has flourished, with everyone wanting a share of the pie on EigenLayer.