January 8, 2024
Recently, with the market refocusing on the Ethereum ecosystem, investors’ interest in Layer 2 (L2) scalability solutions and Liquid Staking Derivatives (LSD) projects has surged. However, despite the collective growth of L2 projects, most LSD projects are still in their beta phase, offering limited returns. Thus, investors are exploring new investment narratives, such as Ethereum re-staking and EigenLayer technology.
Re-staking is not a new concept. Last year, with the introduction of EigenLayer, users were allowed to re-stake their already staked Ethereum or Liquid Staking Tokens (LST), providing additional security to decentralized services on Ethereum and creating opportunities for extra earnings for investors. This innovation not only added security to the Ethereum ecosystem but also opened up higher potential returns for investors.
The core idea of re-staking is to increase security and returns through reinvestment. The typical process involves staking ETH with an LSD service provider like Lido to receive LST tokens (e.g., stETH), and then re-staking these LSTs in EigenLayer to enhance the value of the original investment. The advantage of this model is that it not only increases the efficiency of capital utilization but also strengthens the security of the Ethereum network.
However, a significant issue with re-staking is that it locks up liquidity that could otherwise be used for other investments. To address this, Liquidity Re-staking Tokens (LRT) were introduced. LRTs essentially act as re-staking certificates, allowing holders to use these tokens for other lending, collateralization, or arbitrage activities while retaining their original asset staking, effectively freeing up locked liquidity.
Key projects in the market that are worth attention include:
• SSV Network: Recently announced its foray into re-staking, allowing EigenLayer validators to delegate responsibilities to SSV, leveraging its distributed and non-custodial features to enhance validator performance and security. Additionally, users can earn extra rewards on their staked ETH assets.
• Restake Finance ($RSTK): The first modular liquidity re-staking protocol on EigenLayer. Users can deposit their LST tokens into Restake Finance, create re-staking certificates like rstETH, and then use rstETH to earn profits on various DeFi platforms, while also receiving EigenLayer reward points.
• Stader Labs X KelpDAO ($SD): Previously focused on liquidity staking and supporting multi-chain operations. Its collaboration with KelpDAO enables it to deposit stETH and other LSTs into the Kelp protocol, exchange them for rsETH tokens, and engage in more profit-making activities.
• PrismaFi ($PRISMA): Offers an LSD solution not wholly reliant on LRT. Users can deposit their LST into the Prisma protocol, mint mkUSD, and then generate profits through staking mining, lending, and other activities in different protocols, thereby freeing up the liquidity of LST.
• Picasso Network: By connecting Solana and IBC, Picasso Network offers re-staking services for Solana. Users can re-stake tokens from Solana liquidity staking projects, like mSOL and jSOL, in validators, enhancing network security while earning returns.
These developments indicate that liquidity re-staking is not just an improvement over existing staking mechanisms but also an innovative solution to the liquidity issues in the cryptocurrency market. Through token mapping and equity locking, investors can continually create new earning opportunities through leverage while maintaining their original assets. In this ever-evolving market, the pursuit of liquidity remains a perpetual theme in the crypto space.