Introduction
Taking the next step forward in the staking ecosystem, we hope to start building the Liquid Restaked Token (LRT). The LRT leverages liquid staking infrastructure and opens up new opportunities to stakers. In this forum post, we briefly cover restaking, its advantages, opportunities, and the potential that LRT brings into the ecosystem.
For further details on restaking and EigenLayer, please refer here.
What is Restaking?
Restaking is a process that enables users to stake their ETH on multiple networks simultaneously, including Ethereum and other protocols integrated with EigenLayer. This approach provides several advantages, such as leveraging Ethereum’s security layer, enhancing capital efficiency, and earning additional rewards and governance tokens.
In this forum post, we explore the benefits, opportunities, challenges, and the introduction of the Liquid Restaking Token (LRT) as a potential solution.
Advantages & Opportunities of Restaking:
-
Security for Protocols: Restaking allows protocols to tap into Ethereum’s robust security layer by incentivizing ETH stakers to restake on their respective protocols, enhancing the overall security of these networks.
-
Sovereignty and Flexibility for Protocols: Protocols built on platforms like EigenLayer retain sovereignty and have the freedom to customize their architecture, including the choice of consensus mechanisms and slashing conditions.
-
Increased Capital Efficiency for Stakers: Restaking enables stakers to earn rewards from multiple protocols using the same capital, optimizing their capital efficiency.
-
Restaking Governance Tokens: Restaking offers the dual advantage of securing other services and earning additional rewards or governance tokens, making it an appealing approach for ETH stakers.
Potential Challenges Faced by Restaking
While restaking provides numerous opportunities, it also presents challenges that need to be addressed effectively:
-
Complex Discovery of Restaking Services: Growth in services makes it challenging for stakers to discover suitable restaking services, requiring thorough research and understanding of the services and restaking.
-
Complex UI/UX: Managing multiple assets across various platforms and handling different governance tokens can be complex and potentially burdensome for stakers.
-
High Gas Fees: Gas fees associated with claiming rewards from restaking and staking can significantly impact profits, especially for smaller investors.
-
Liquidity Constraints: When ETH is staked or re-staked, it becomes illiquid and cannot be readily used or traded until the unbonding period expires, which could be a significant drawback.
-
Decision Dilemma: Users face the challenge of choosing between restaking and DeFi, assessing the risk-reward ratios with limited information.
Introducing LRT (Liquid Restaking Token):
To address these challenges, the Liquid Restaking Token (LRT) or EigenETH is introduced as a potential solution. EigenETH is a synthetic token provided on top of restaked ETH, ETHx, or other restaked LSTs. It not only solves the aforementioned problems but also enables simultaneous access to restaking and DeFi.
Here’s how it works:
- Restakers stake their ETH or liquid tokens.
- They receive LRT tokens, such as EigenEth, representing the underlying restaked assets.
- EigenEth receives ETH staking rewards and restaking rewards (c-token).
- EigenEth can be deployed on DeFi platforms for various purposes, including AMMs and lending markets.
The LRT DAO selects validators and services for restaking ETH, with potential future options for validators to join in a permissionless manner. A multi-pool architecture similar to ETHx can facilitate this process.
Market Opportunity:
Restaking and Liquid Restaking present a significant market opportunity, particularly in the early stages. The PoS staking market is already substantial, with a total Ethereum market cap of approximately $230 billion and staked Ethereum reaching $40 billion. The current staking rewards on Ethereum alone amount to around $2 billion, and the potential rewards from restaking could surpass this as more services opt for staking. This early-stage market opportunity provides a favorable landscape for early movers to capture.
Conclusion:
The introduction of liquid restaking and the LRT token offers a promising paradigm shift in the staking ecosystem. While challenges exist, the potential benefits, such as enhanced security, capital efficiency, and the integration of restaking and DeFi, make it a rewarding product to build upon. The LRT protocol is still in early stages of assessment of technical, legal, and protocol risks. We look forward to the community’s feedback to improve the solution further.