The LRT protocol, by providing liquidity to tokens representing RestakingETH, has revolutionized the staking participation model and become a significant force driving the prosperity of the Ethereum ecosystem.
Written by: Chandan, Web3 Research
Translated by: Plain Blockchain
This is a brief introduction to AVS and node operators, various LRT protocols, and the latest developments in the field.
To become an Ethereum validator, you need two resources: 32 ETH and the hardware required to run node software. If you lack the required 32 ETH, you can delegate your funds to a liquid staking solution. These platforms will supplement your ETH and operate nodes on your behalf, sharing the rewards with you.
Currently, in the market of liquid staking solutions, Lido holds a 30% market share, followed by Coinbase with 14%, Binance with 3.88%, and other providers.
Liquid staking solutions like Lido, Coinbase, and Rocket Pool offer derivative tokens that represent users’ staked ETH. Lido provides STETH, Coinbase provides cbETH, and Rocket Pool offers RETH. These liquid staking derivative tokens function similarly to other ERC20 tokens in the DeFi ecosystem, allowing users to provide liquidity on decentralized exchanges (DEXs), participate in lending protocols, and engage in various other DeFi activities.
1. EigenLayer
EigenLayer is a restaking protocol that advances the concept of liquid staking. While liquid staking allows users to use their staked tokens in other DeFi protocols, EigenLayer makes it possible to restake ETH in other protocols that require security. The protocols that use EigenLayer to restake ETH for security are called Active Validation Services (AVS).
Active Validation Services (AVS) integrate the EigenLayer protocol with Ethereum’s security mechanisms, enhancing the validation of blockchain applications that do not have their own consensus mechanisms.
ETH is staked both on the Ethereum network and on AVS. Prominent projects such as AltLayer, Celo, Espresso, EigenDA, Hyperlane, Mantle, and Polyhedra plan to participate in EigenLayer as early AVS participants. The staked ETH can earn rewards from both types of staking, though it is subject to different punishment conditions.
How can ETH be staked on both the Ethereum network and other AVS protocols?
Ethereum validators can set withdrawal credentials that allow ETH withdrawal, including to the smart contract of EigenLayer. This enables Ethereum validators to participate in AVS validation through restaking with ETH and running the required clients, with the withdrawal credentials set to the smart contract of EigenLayer. If the validator meets the punishment conditions of AVS, EigenLayer has the authority to punish the ETH, subjecting the restaked ETH to both punishment conditions.
2. Node Operators within EigenLayer
Node operators protect AVS transactions by restaking their ETH on EigenLayer and earn additional validation rewards from operating on AVS beyond Ethereum rewards. This provides validators with an economically incentivized ecosystem to support AVS networks.
1) What is the Liquid Restaking Token (LRT) protocol?
The Liquid Restaking Token (LRT) protocol aims to unlock the liquidity of ETH restaked on EigenLayer, similar to how liquid staking tokens unlock staked ETH on Ethereum. From an end-user perspective, the LRT protocol addresses several inconveniences encountered when interacting directly with EigenLayer.
2) Inconveniences of using EigenLayer directly
Node operator selection: End-users find it challenging to choose node operators on EigenLayer due to the complexity of considering risks and rewards.
Interest compounding: Users have to manually compound the rewards in EigenLayer to benefit from compounding interest, resulting in expensive gas fees.
Lack of liquidity: ETH restaked on EigenLayer lacks liquidity and cannot be easily used elsewhere.
The LRT protocol solves these issues by restaking deposited ETH on various operators within EigenLayer, standardizing rewards and risk allocation. Additionally, it provides users with tokenized representations of their restaked ETH and rewards, enabling them to leverage these tokens for additional benefits in other DeFi protocols.
3. Different types of LRT protocols:
1) Native Liquid Restaking:
Native Liquid Restaking protocols require the full functionality of traditional liquid staking protocols and an additional layer to create EigenPods for restaking with different EigenLayer node operators.
Ether.fi:
This protocol allows users to mint eETH by staking their ETH, making it the first native liquid restaking token on Ethereum. By minting eETH, users can benefit from the rewards generated through staking and restaking activities conducted through Ether.fi.
Ether.fi is the only protocol that allows stakers to control their keys, reducing counterparty risks from node operators and the protocol itself.
Ether.fi operates Operation Solo Staker, achieving further decentralization of Ethereum by launching nodes in different geographical regions.
Puffer:
Puffer is a decentralized native liquid staking protocol (nLRP) built on EigenLayer, making native restaking on EigenLayer more accessible. It allows anyone to run Ethereum Proof of Stake (PoS) validators and increase their rewards simultaneously.
Capital efficiency: Running validators requires less than 2 ETH. Penalty protection: The first anti-penalty hardware support. MEV autonomy: Node operators can choose their own MEV strategy.
Swell allows users to earn pass by staking or restaking ETH while earning rewards from blockchain and restaking AVS. In return, users receive a profit-generating liquid token (LST or LRT) that can be held or used in a broader DeFi ecosystem for additional returns.
2) Basket-based LRTs:
Allow users to stake various tokens and receive a single token representing restaking, called Liquid Staking Tokens (LSTs) basket. Involves multiple counterparty risks due to exposure to different tokens.
Renzo:
The strategy manager for EigenLayer guiding users in restaking strategies.
Key product: ezETH, a liquid token representing users’ restaking positions.
Function: Users can deposit liquid staking tokens (stETH, rETH, cbETH) to mint ezETH. For each LST or ETH deposited on Renzo, an equivalent amount of ezETH is minted.
Kelp DAO:
rsETH is a single liquid restaking token (LRT) applicable to all acceptable ETH LSTs. Kelp’s rsETH is a liquid restaking token that provides liquidity for non-liquid assets deposited on restaking platforms like EigenLayer.
3) Isolated LRTs:
Involve exchanging a specific type of Liquid Staking Token (LST) for the corresponding specific type of Liquid Restaked Token (LRT). By isolating the relationship between LSTs and LRTs, counterparty risks are minimized.
Astrid Finance:
Users deposit LSTs (stETH, rETH, or cbETH) into the restaking pool and receive corresponding Astrid liquid restaking tokens or LRTs (rstETH, rrETH, rcbETH). The pooled LSTs are restaked on EigenLayer and delegated to multiple operators voted by Astrid DAO. The earned rewards are distributed through balance rebase, automatically adjusting the user’s balance for compounding.
These protocols cater to different user preferences and risk allocations, providing flexibility in managing staking assets while considering factors such as counterparty risks and reward structures.
4. Latest developments in LRT protocols and the EigenLayer field:
1) Expansion of AVS providers:
The number of AVS projects listed on the EigenLayer website has reached approximately 76, with new ones launching every day.
2) Growth of liquidity restaking protocols:
Liquid restaking protocols like Ether.fi, Puffer, and Swell have gained wide popularity and adoption, attracting over $5 billion in Total Value Locked (TVL).
3) Growth in EigenLayer’s TVL:
EigenLayer’s Total Value Locked (TVL) increased from $2 billion in January to $11 billion, growing five times.
4) Innovative token models:
Various types of LRT protocols have emerged, including native liquid restaking (e.g., Ether.fi), basket-based LRTs (e.g., Kelp DAO), and isolated LRTs for specific Liquid Staking Tokens (LSTs). These diverse models provide users with multiple options to manage staking assets while considering counterparty risks and maximizing returns.
5. Conclusion:
Just as we have seen liquid staking tokens become widely used in decentralized exchanges and lending protocols, we can expect a similar trend with LRT tokens. Many projects have created different types of liquid restaking tokens with their own advantages and disadvantages.
While this does introduce additional leverage, the core increase in risk comes from new unlocking conditions. This risk is not as complex or dangerous as the community may perceive. If LRT protocols become more active, despite Ethereum’s large market cap, it can still generate significant value, and we can expect the Ethereum DeFi ecosystem to become more vibrant.
Tags:
Coinbase
DeFi
EigenLayer
Lido
TVL
Ethereum
Binance
Source link:
https://www.hellobtc.com/kp/du/04/5122.html
Note: The views expressed in the above article are solely those of the author and do not constitute investment advice.
Original article link:
https://www.bitpush.news/articles/6588037
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