APPLICATION

Detailed explanation of the opportunities and risks associated with the Liquidity Rebase Token (LRT) project.

2024/1/5

In addition to introducing the narrative of re-staking, EigenLayer has recently seen many projects in the Ethereum ecosystem involving Liquid Restaked Tokens (LRT), which aim to attract market attention from the perspective of multiple returns. However, risks increase with the stacking.

This article is not investment advice.

Table of Contents

EigenLayer Receives Significant Market Attention

High Demand for Re-staking

The re-staking protocol EigenLayer has restricted the total deposit limit at the current stage to test the protocol within a reasonable range, but market demand is clearly greater than the existing supply quota.

Recently, EigenLayer increased the limit of its re-staking pool, allowing users to deposit more liquid staking tokens and quickly reached the limit within a short period. The staking pool has now reached an astonishing 640,000 ETH, with a total amount exceeding $1.3 billion, surpassing the total value locked (TVL) of many top-tier competing chains.

The re-staking project EigenLayer reopens staking, with TVL surpassing $740 million.

In addition to increasing the deposit limit, EigenLayer has attracted various Ethereum liquidity staking protocols to join, thus opening up more diverse options for staking tokens. Currently, they include:

stETH issued by Lido: 200,000 tokens
swETH issued by Swell: 110,000 tokens
rETH issued by Rocket: 53,000 tokens
ETHx issued by Stader: 49,000 tokens
cbETH issued by Coinbase: 27,000 tokens
osETH issued by StakeWise: 15,000 tokens
wBETH issued by Binance: 14,000 tokens
oETH issued by Origin: 11,000 tokens
ankrETH issued by Ankr: 10,000 tokens

It is worth noting that each pool has different quantity limits, so the actual demand is expected to exceed the current situation, all for the purpose of re-staking and potential airdrop opportunities.

Furthermore, Bankless has recently made a prediction about EigenLayer, expecting it to reach a TVL of $10 billion by 2024, indicating a positive outlook for the re-staking field.

Raised Funds Stand Out Among Peers

In 2023, EigenLayer completed a Series A funding round of $50 million, making it one of the largest funding amounts in the industry considering the bear market last year, demonstrating high expectations from the capital market for the project.

2023 Cryptocurrency Project Funding Ranking Source

Research | Infrastructure Attracts Attention, Cryptocurrency Industry 2023 Financing Summary Report

Liquidity Re-staking Tokens May Be the Next Market Narrative

However, the opportunities brought by EigenLayer are not limited to this. The market is starting to see the emergence of Liquidity Re-staking Tokens (LRT), which may experience rapid growth this year. This is the next significant topic after EigenLayer introduced the re-staking restaking narrative.

What Is LRT?

Liquidity Re-staking Token (LRT) represents the evolution of the Liquidity Staking Token (LST), serving as liquidity for ETH but generating additional rewards on top of ETH staking rewards.

The following explains and distinguishes the two based on principles:

Liquidity Staking Token (LST): Users deposit ETH into the protocol and receive tokens proving liquidity. The protocol stakes ETH in Ethereum to earn rewards distributed to stakers. For example, users stake ETH in Lido and receive stETH.
Liquidity Re-staking Token (LRT): Users deposit ETH or LST into the protocol for re-staking, receive tokens proving re-staking, and the protocol stakes ETH or LST in EigenLayer to earn rewards distributed to stakers. For example, users stake stETH in KelpDAO.

Liquidity Re-staking Tokens essentially add another layer of protocol staking, allowing users to earn more rewards in EigenLayer's tokens and potential airdrop profits.

Advantages of LRT

LRT, like LST, offers DeFi composability. This means users can freely borrow, trade, and stake in other protocols, known as the LRTfi sector discussed in the community. Of course, users can also directly buy back LST or even ETH on Uniswap, increasing capital utilization flexibility.

However, the biggest advantage of LRT is the ability to accumulate multiple rewards for stakers. In addition to Ethereum staking rewards, stakers can also receive potential profits from EigenLayer, rewards that node operators may distribute, potential airdrops from LRT projects, and liquidity mining rewards, among others. In the current crypto ecosystem where benefits are paramount, multiple returns naturally attract market attention.

List of LRT Projects

Many LRT projects have recently emerged, with some existing LST projects expanding their services to seize opportunities:

However, most of them are still in the testing phase and belong to the early exploration stage, so it will take time for them to be fully operational.

Overview of Liquidity Staking and Re-staking Ecosystem Source

Risks of Liquidity Re-staking Tokens Should Not Be Overlooked

Despite EigenLayer becoming a fundamental protocol even before its formal operation, its future importance and influence are evident, with the Ethereum ecosystem developing narratives centered around it.

Whether it's Ethereum, EigenLayer, the aforementioned LRT projects, or LRTfi projects, any smart contract vulnerabilities in these protocols can cause harm to user assets. Additionally, as staking protocols are relatively easy to write, many competitors have emerged, potentially varying in security levels.

Moreover, as LRT is still in a relatively early development stage, and related re-staking protocols may only allow deposits without enabling withdrawals, participants must be cautious of the risks.