Introduction
The world of liquid staking has rapidly evolved into the largest category by TVL in the crypto space. With Ethereum’s transition to PoS and the Shapella upgrade enabling withdrawals, the LST ecosystem has expanded dramatically. Notably, the LSTfi narrative has surged, offering new opportunities for LST holders. Now, Kelp is thrilled to bring forward the next innovation in the staking landscape: Liquid Restaked Token (LRT).
What is Restaking?
Restaking is a process that empowers users to stake their ETH and support validation on multiple networks, including Ethereum and other protocols integrated with a restaking protocol. This approach utilizes Ethereum’s security layer to improve capital efficiency throughout the crypto ecosystem, offering stakers the opportunity to earn additional rewards for their validation services.
In the realm of restaking, EigenLayer plays a significant role.
What is EigenLayer?
EigenLayer is a protocol built on Ethereum that introduces restaking as a new primitive in crypto-economic security. It allows stakers to reuse their ETH on the consensus layer. Users staking ETH directly on the beacon chain or with liquid staking tokens (LSTs) can opt into EigenLayer smart contracts to restake their ETH or LST. This not only supports the security of other applications on the network but also provides extra compensation to participants.
With EigenLayer, Ethereum stakers can enhance the security of various services by restaking their staked ETH with specific node operators. These operators, in turn, provide economic security to multiple services simultaneously. Restaking the same staked ETH helps secure more services and boosts rewards for both delegated stakers and node operators.
Opportunities of restaking
Restaking presents several advantages in the DeFi space. Some include:
- Economic security for protocols:
EigenLayer simplifies the process of bootstrapping economic security for new blockchains or protocols at a fraction of the cost. - Flexibility for protocols:
Protocols can focus on their application-level choices while retaining complete control over consensus and slashing conditions. - Improved capital efficiency for stakers:
Restaking enables stakers to earn rewards from validation activities supporting multiple services without tying up additional capital, thus enhancing their capital efficiency and rewards accrued from validation services.
Potential challenges of restaking
While restaking offers numerous opportunities, it also presents challenges that must be effectively addressed.
- Discovery for node operators:
Each node operator can choose different services to run nodes, making it a complex task for restakers to find operators meeting their risk profile. This can necessitate periodic reevaluation of services supported by their operators. - Complex reward structures:
Services may choose to reward restakers and node operators in multiple denominations, leading to difficulties in collecting, bookkeeping, and auto-compounding tokens across many node operators, each with its own market value. - High gas fees:
Fees associated with claiming rewards from restaking and staking can significantly impact returns, particularly for smaller investors. - Liquidity constraints:
Staking or restaking ETH renders it illiquid, preventing easy use or trading until the unbonding period ends, a drawback for those requiring immediate liquidity. - Opportunity cost:
Users face the challenge of choosing between staking-and-restaking and DeFi opportunities, often requiring an assessment of risk-reward ratios with limited information.
Introducing LRT (Liquid Restaked Token)
To address these challenges, the Liquid Restaked Token (LRT) has been introduced as a potential solution. The new LRT token is a synthetic token issued for restaked ETH. It not only resolves the previously mentioned issues but also enables easy access to both restaking and DeFi.
Here’s how it works:
- Restakers stake their ETH or liquid tokens to mint LRT tokens, indicating fractional ownership of the underlying LRT assets.
- LRT contracts distribute the deposited tokens to different Node Operators working with the LRT DAO.
- Rewards continue to accrue from various services to the LRT contracts, with the price of LRT tokens reflecting the underlying prices of rewards and staked tokens.
- Restakers can swap their LRT tokens for other tokens on AMMs or choose to redeem underlying assets through LRT contracts.
- Restakers can further leverage the composability of their LRT tokens in DeFi.
- The LRT DAO will continue to monitor new services for onboarding and validators to be part of an operational set.
- Tokenomics will play a crucial role in allocating stake between different services.
- 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 can facilitate this process.
With LRT, Kelp offers a solution that enhances liquidity, flexibility, and the potential for higher rewards.
Conclusion
LRT represents the next step in the evolution of the staking landscape, designed to overcome the challenges posed by the ever-growing opportunities in the crypto space.
Stay tuned as Kelp continues to lead the way in the world of liquid restaking. We have exciting updates on the horizon, including our LRT litepaper, roadmap, audit reports and special incentives for early liquid restakers.
To ensure you’re among the first to know about these developments, sign up for our mailing list and connect with us on Discord and Telegram. For the latest news and insights, visit Kelp’s Twitter page.
Join us on this thrilling journey towards a more dynamic and rewarding restaking experience.