LRT Track Catalyzes Ethereum Ecosystem

With the completion of the Cancun upgrade, Ethereum and its ecosystem tokens have shown impressive price performance. Modular concept projects and Layer 2 solutions are successively launching on the mainnet, further boosting market optimism towards the Ethereum ecosystem. Liquidity re-staking (LRT) has attracted capital attention due to the explosive popularity of the EigenLayer project.

This article focuses on the LRT track ecosystem, detailing the current situation, opportunities, and future. Currently, LRT projects are severely homogenized, with most not having issued tokens. Projects with distinctive development paths such as KelpDAO, Puffer Finance, and Ion Protocol are more promising. It is expected that LRT will be a rapidly growing niche market in the future, but only a few leading projects will stand out.

LRT Track Background

As the Cancun upgrade approaches, the prices of Ethereum ecosystem tokens are performing excellently. The modular concept and Layer 2 projects are being launched one after another, boosting the market's optimism towards the Ethereum ecosystem.

Liquid staking occupies an important position in the Ethereum ecosystem, and the concept of "re-staking" has gained attention with the rise of EigenLayer. "Re-staking" was proposed by Eigenlayer in June 2023, allowing users to re-stake their staked ETH or LST, providing additional security for decentralized services on Ethereum while earning rewards. This led to the birth of the LRT project.

LRT Evolution Path

LRT( liquidity re-staking token ) is the "re-staking certificate" after LST re-staking. Its evolution path is as follows:

1. Ethereum Native Staking: Under the PoS mechanism, validators stake 32 ETH to maintain network security and earn rewards.

2. The birth of the LST protocol: lowering the staking threshold and releasing liquidity. For example, Lido allows staking any amount of Ether and receiving stETH.

3. The emergence of Restaking Protocol: LST can be staked on other networks to obtain more rewards. Eigenlayer is a representative, sharing security and providing higher returns.

4. The Birth of LRT: Re-staking LST in the Restaking protocol to obtain the "Re-staking Certificate" LRT. LRT can be used for more financial operations.

5. Pendle Protocol Supports LRT: Pendle provides an LRT trading market, allowing for pre-sales/layouts for long-term airdrop opportunities.

Is LRT a Matryoshka doll?

This needs to be discussed on a case-by-case basis:

• If within a single DeFi ecosystem, staking LST generates restaking certificates, and then these certificates are staked to issue governance tokens, allowing the secondary market speculation to feed back into the expected value of Restaking, this is a nesting doll.

• The classic re-staking model centered around Eigenlayer + Pendle is not a nested model:

1. Eigenlayer provides verification services for application chains through AVS and charges fees.
2. Pendle provides an LRT trading market, locking in airdrop profits and leveraged mining.

This model essentially shares the security of Ethereum, where projects pay for services, resulting in positive cash flow, making it a reasonable economic model.

LRT Track Ecosystem Situation

EigenLayer - Re-staking Middleware

EigenLayer is a re-staking aggregation on Ethereum that allows ETH stakers to validate new software modules on Ethereum. It enables re-stakers to validate different networks and services through smart contracts, saving costs for third-party protocols while enjoying the security of Ethereum, providing re-stakers with multiple rewards and flexibility.

EigenLayer AVS( Active Verification Service ) is its core concept. AVS abstracts the process of Ethereum actively verifying Rollup L2 state data consistency into a new concept. EigenLayer wraps the security of Ether PoS consensus economy into a low-spec version through Restaking, targeting projects such as Dapp Rollup, oracles, cross-chain bridges, etc., that have lower demand for consensus security.

Currently, there are about 13 AVS projects, mainly serving the security, scalability, interoperability, and decentralization of Rollups, with extensions also reaching the Cosmos ecosystem.

Ethereum LRT project overview

There are about 15 LRT protocols on Ethereum, 9 have been launched, and 6 are in the testnet. They are mainly divided into 3 categories:

1. Liquid-LSD Restaking: such as KelpDAO, Restake Finance, Renzo. Homogeneity is severe, and innovation is limited.

2. Liquid Native Restaking: such as Ether.fi, Puffer Finance, providing small amount ETH node services.

3. Optimize based on Eigenlayer: For example, SSV, it is necessary to find breakthrough points to attract nodes.

The main innovations of the LRT protocol:

• Provide stronger security
• Optimize Allocation Strategy
• Lower the entry threshold

Specific project situation:

Renzo

• Optimize Eigenlayer, simplify user operations, no deposit limit
• Completed $3.2 million seed round financing
• TVL $777.7m, 217,817 ezETH have been minted

KelpDAO

• Stader Labs supported project, supports multiple LSTs
• Provide AMM liquidity pool, redeem rsETH at any time.
• TVL $718.76m

Restake Finance

• The first modular LRT protocol on Eigenlayer
• TVL $15.5m, 4,090 rstETH in circulation

Puffer Finance

• Anti-forfeiture liquidity staking protocol
• Lower the threshold to 2 ETH to attract small nodes.
• TVL $1.40b, 365,432 pufETH have been minted

Liquidity Staking + Re-staking Service

Projects like SSV network, Swell, Ether.fi, etc., have already taken a leading position on the Eigenlayer network.

Other LRT protocols

Including Eigenpie, Ion Protocol, Rio Network, each with its own characteristics.

Future Predictions for the LRT Track

LRT is a rapidly growing niche market, but the projects are highly homogeneous, and the available funding is limited. It is expected that only a few top projects will stand out.

Risk:

• Risk of fines
• Centralized Risk
• Contract Risk
• Multi-layered risk accumulation

Opportunity:

• Combine with other DeFi protocols
• Enhanced Security
• Multi-chain expansion