Coin Edition -
Table of contents
- What is Staking?
- The Concept of Restaking
- EigenLayer
- Native Restaking
- Liquid Restaking
- How Does Liquid Restaking Function?
- Top Liquid Restaked Protocols
- 1. Kelp DAO
- 2. Renzo Protocol
- 3. Restake Finance
- 4. etherFi
- 5. Puffer Finance
- Limitations and Challenges of Liquid Restaking Protocols
- Conclusion
What is Staking?
Staking is a process that allows users to lock their crypto holdings, or in other words, their “stake,” to ensure the safety and operation of a blockchain ecosystem. While staking is possible only on blockchain networks such as Ethereum and Cardano built on a Proof-of-Stake (PoS) consensus mechanism, it helps to validate transactions.
The Concept of Restaking
Restaking is a novel concept that allows staking the same ETH across Ethereum and other blockchain networks. It involves reusing staked or locked Ether at the consensus layer to earn fees and rewards.
EigenLayer
EigenLayer is a decentralized Ethereum restaking protocol that acts as the software between an operating system and its applications. The protocol has adopted restaking as its fundamental element, permitting users to stake and restake liquid staking tokens (LST) within the network.
Native Restaking
Through native restaking, an Ethereum validator can set their withdrawal credentials to EigenLayer’s smart contracts (EigenPod). Usually, the Ethereum validators can earn profits only through Ethereum. However, with EigenLayer’s native restaking, the validators can amplify their earnings potential by actively participating in EigenLayer operations.
Liquid Restaking
Liquid restaking is the process of depositing liquid staking tokens (LSTs) into EigenLayer’s smart contracts. The process envisions offering enhanced accessibility and functionality to Node Operators and developers. EigenLayer has introduced liquid restaking as a strategic solution to the issues and challenges posed by native restaking, including security issues and entry barriers.
How Does Liquid Restaking Function?
The process of liquid restaking begins by depositing LST into liquid restaking protocols. When the user deposits LST, they receive LRT tokens in return. These tokens represent profits generated from two sources, including ETH staking on Ethereum and node operators on EigenLayer.
Top Liquid Restaked Protocols
1. Kelp DAO
Launched by former members of the Stader Labs team, Kelp DAO focuses on enhancing liquidity within the EigenLayer ecosystem. Kelp DAO is known as a Liquid Restaking protocol operating within the EigenLayer ecosystem, focusing on the restaked ETH, rsETH. rsETH is a synthetic token derived from the ETH token LSTs.
Kelp DAO allows users to engage in DeFi activities while holding rsETH. This empowers users and bestows them with increased yield when compared to LSTs. It also helps to optimize capital utilization efficiency.
2. Renzo Protocol
Renzo Protocol, an emerging Liquid Restaking Token (LRT) platform with the EigenLayer ecosystem, is built to streamline operations for restaking users on EigenLayer. The protocol allows users to earn ezETH, a liquid restaking token. It helps the users to use their capital effectively.
In addition, Renzo Protocol ensures users get a full value of Eigen Points, along with Renzo Points. Eigen Points is a newly added concept that serves as the benchmark for airdrop distribution.
3. Restake Finance
Restake Finance is the first protocol to launch modular liquid staking for EigenLayer. It introduces an innovative reform, rehypothecation, that integrates LST as a “Cryptoeconomic security” for Actively Validated Services (AVS) within EigenLayer. With modular liquid staking, the LST holdings could be used as cryptoeconomic security, enhancing the security and functionality of EigenLayer. Restake Finance’s rstETH allows users to earn rewards from restaking without fully committing their assets, unlike the traditional staking mechanism.
4. etherFi
EtherFi is a non-custodial decentralized ETH staking protocol established by Mike Silagadze and launched in 2023. The protocol offers users an opportunity to stake assets and provide liquidity across Ethereum and multiple blockchains. This is the only protocol in which users have control of their private keys while staking assets within the network.
The protocol boasts a novel service that enables users to establish a Node service marketplace, enhancing the efficiency of the ecosystem. By registering Nodes within the marketplace, users can receive rewards as compensation for their services. eETH is the native restaking token of etherFi.
5. Puffer Finance
Puffer Finance is an innovative protocol that combines Ethereum’s liquid staking with native restaking features on EigenLayer to form a native liquid restaking protocol. Being a Liquid Staking Derivatives platform, Puffer Finance revolutionizes the staking landscape on Ethereum. The protocol eliminates the tough entry barriers of large volumes of tokens by allowing entry with a low bond of 1-2 ETHs. It also tackles the critical challenges of decentralization. Puffer Finance’s native Liquid Restaking Token (nLRT) is pufETH.
Limitations and Challenges of Liquid Restaking Protocols
Despite reshaping the staking landscape, liquid restaking protocols pose a series of challenges, including the potential abuse of leverage and the risk of losing assets. Inexperienced node operators could encounter difficulty while activating multiple nodes, leading to facing penalties and losing their entire ETH stake. If node operators fail to tackle the complexity of the operations and mismanage the entrusted funds, users could lose their assets.
Conclusion
Liquid Restaking is an innovative project that boasts the potential to reshape the ecosystem, offering enhanced liquidity and yield optimization. However, as it poses potential risks of losing assets, users should engage in research before utilizing these promising protocols.
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