Original source: HTX Research

With the completion of the Cancun upgrade, the prices of Ethereum and its related ecological tokens have performed well in the recent past. At the same time, modular concept projects and Ethereum Layer2 projects have successively launched mainnets, further promoting the current market's optimism for the Ethereum ecosystem. The Liquid Restaking narrative also began to attract capital attention due to the popularity of the EigenLayer project.

But, from ETH -> LST - > LRT, is it an ecological catalyst for Ethereum or a matryoshka doll as most people say?

This research report focuses on the ecological situation of the LRT track and elaborates on the current situation, opportunities and future of the LRT track. At present, many LRT protocols do not issue tokens, and the homogeneity of projects is serious. But the more optimistic ones are KelpDAO, Puffer Finance, and Ion Protocol. These three types of protocols have development routes that are obviously different from other LRT protocols. The future of LRT racing remains a rapidly growing niche market. Huobi Research predicts that only a few leading projects will emerge in the future.

This speech was written by the Research team of HTX Ventures. HTX Ventures is the global investment arm of Huobi HTX, integrating investment, incubation and research to identify the best and most promising teams around the world.

LRT track background

As the Cancun upgrade approaches, Ethereum and its related Ecological token prices have performed well recently. At the same time, modular concept projects and Ethereum Layer2 projects have successively launched mainnets, further promoting the current market's optimism for the Ethereum ecosystem.

Liquidity staking projects occupy a large share in the Ethereum ecosystem, and another narrative - re-staking, with the EigenLayer project The popularity started to attract the attention of capital.

The concept of “re-pledge” was first proposed by Eigenlayer in June 2023. It allows users to re-stake already staked Ethereum or Liquidity Staked Tokens (LST) to provide additional security for various decentralized services on Ethereum and earn additional rewards for themselves. Based on the re-pledge service provided by Eigenlayer, Liquidity Re-pledge Token (LRT) related projects came into being.

Is LRT a matryoshka doll? Take a look at the evolution path of LRT

LRT liquidity re-pledge token refers to a "re-pledge certificate" obtained after pledging LST.

So,

1. How was this re-pledge certificate LRT born?

2. From ETH -> LST - > Is LRT a matryoshka doll as most people say?

This requires tracing the evolution path of LRT.

Phase 1: Ethereum native staking

After Ethereum upgraded to the PoS mechanism, in order to maintain the security of the Ethereum network, the identity of the miners also changed to verifiers, responsible for storing data and processing Transact and add new blocks to the blockchain and receive rewards. Becoming a validator requires staking at least 32 ETH on Ethereum and a dedicated computer connected to the internet 24/7.

Phase 2: The birth of the LST protocol

Since the official pledge requires at least 32 ETH, and withdrawals cannot be made for a long time, against this background, pledge platforms have emerged. They mainly Solve 2 problems:

1. Lower the threshold: For example, Lido can pledge any amount of ETH and there is no technical threshold

2. Release liquidity: For example, you can obtain stETH by staking ETH on Lido, and stETH can participate in Defi or exchange it for approximately equivalent ETH

Popular To put it bluntly, it’s a “group fight.”

Phase 3: The birth of the Restaking protocol

With the development of the Ethereum ecosystem, everyone has discovered that liquid pledged token assets (LST) can be pledged on other networks and blockchains to Gain more revenue while still helping to improve the security and decentralized behavior of the new network.

The most representative project is Eigenlayer, and the logic behind its re-pledge is mainly divided into two parts. The first is the shared security of the ecosystem within ETH, and the second is users’ demands for higher returns.

· Re-staking can share security with side chains and middleware (DA Layer/Bridge/Oracle, etc.) to further maintain the network security of Ethereum. Secure sharing allows a blockchain to enhance the security of its own blockchain by sharing the value of another blockchain’s verification nodes.

· From the user's perspective, staking is to find returns, and staking again is to find more returns.

Phase 4: The birth of LRT

With the Restaking protocol, everyone found that LST can be Staking earns interest, but after the LST tokens are put in and pledged, the liquidity seems to be locked. At this time, some projects discovered the opportunity. They helped users put LST assets into the Restaking protocol for re-pledge to obtain a profit. At the same time, they issued a "Re-pledge Voucher" to the user. Users can use this "Re-Pledge Voucher" ” Carry out more financial operations, such as mortgages and loans, to solve the liquidity lock-up situation during re-pledge. The “re-pledge certificate” here is LRT.

Phase 5: Pendle protocol supports the outbreak of LRT

When a user obtains LRT and wants to perform a series of financial operations, where should these LRTs go and what financial operations should they perform? At this time, Pendle provides a very elegant solution.

Pendle is a decentralized interest rate trading market that provides PT (Principal Token, principal token) and YT (Yield Token, income token) ) transactions.

With the emergence of yield-based USD and more recently Liquidity Recollateralized Tokens (LRT), the types of yield-based tokens have gradually expanded, allowing Pendle to continue to iterate and supports profitable trading of these cryptocurrencies. Pendle’s LRT marketplaces have been particularly successful as they essentially allow users to pre-sell or place long-term airdrop opportunities (including EigenLayer). These markets have quickly become the largest on Pendle by a wide margin:

· Through custom integration of LRT, Pendle allows Principal Token to lock in base ETH earnings, EigenLayer airdrops, and any airdrops associated with the Restaking protocol that issues LRT. This creates an annual yield of over 30% for Principal Token buyers.

· On the other hand, Yield Token allows for some form of "leveraged point farming" due to the way LRT is integrated into Pendle. . Through the swap function in Pendle, we can exchange 1eETH for 9.6 YT eETH, which will accumulate EigenLayer and Ether.fi points just like holding 9.6 eETH.

· In fact, for eETH, Yield Token buyers can also get 2 times the points of Ether.fi, which is actually "leverage to win the pledge of airdrops" (leveraged airdrop farming)".

Using Pendle, users can lock in ETH-denominated airdrop earnings (based on market airdrop expectations for EigenLayer and LRT protocols) and leveraged liquidity mining. With speculation surrounding a possible airdrop of AVS to LRT holders this year, Pendle is likely to continue to dominate this market segment. In this sense, $PENDLE provides good exposure to success in the LRT and EigenLayer verticals.

Summary:

The above explains how LRT was born, then,

From ETH -> LST - > Is LRT a matryoshka doll as most people say?

The answer to this question needs to be discussed on a case-by-case basis.

If It is said that within a single DeFi ecosystem, staking LST generates re-pledge certificates, and then pledges the certificates, and then issues a governance token in the name of locking liquidity, allowing the secondary market speculation to feed back the expected value of Restaking. This is a arbitrage baby. Because allowing the inflow of funds from the next level to feed back the assets of the upper level is overdrafting the market's expectations for a Token, no real value growth occurs.

Then take a look at the classic re-pledge mode with Eigenlayer + Pendle as the core,

Through Eigenlayer,

· Users repeatedly pledge LSD to EigenLayer.

· Repeatedly pledged assets will be provided to AVS (Actively Validated Services) for protection.

·AVS provides verification services for application chains.

· Application chain payment service fees. The fees will be divided into three parts and distributed to stakers, AVS and EigenLayer as staking rewards, service income and protocol income respectively.

Through Pendle,

· Users can lock in ETH-denominated airdrop earnings (based on market Airdrop expectations for EigenLayer and LRT protocols)

· Leveraged liquidity mining

· LRT has excellent application scenarios as an interest-earning asset

The essence of this model is to share the security of Ethereum, and projects that share security through this mechanism need to pay for the service. Positive funds enter the ecosystem. This is Definitely not a nesting doll, but a very reasonable economic model.

To put it simply, the core driving force for the launch of this round of LRT narratives has the following two key conditions

1. The interest-earning ability of LRT’s underlying assets

2. The application scenarios of LRT

First, the interest-earning ability of LRT’s underlying assets The interest-generating ability is provided by Eigenlayer, including Eigenlayer’s airdrops and its practical service income. Eigenlayer will be introduced in detail below

Second, LRT application scenario Pendle gives A good example

Then below, we will focus on introducing Eigenlayer, the core project of Restaking, and take stock of other LRT projects.

LRT track ecological situation (key introduction)

EigenLayer-re-pledge middleware

EigenLayer Introduction

EigenLayer is a re-pledge of Ethereum Collection, a set of smart contract middleware on Ethereum, allows stakers of consensus layer Ethereum (ETH) to choose to verify new software modules built on top of the Ethereum ecosystem.

EigenLayer allows any stake holder to contribute to any PoS network by providing an economic stake platform. By reducing cost and complexity, EigenLayer effectively mines the Cosmos stack for L2 paves the way for expressive innovation. Protocols using EigenLayer are "renting" their economic security from Ethereum's existing stakers, and this reuse of ETH provides security for multiple applications.

In summary: EigenLayer uses a set of smart contracts to allow re-pledgers to participate in the verification of different networks and services, saving costs for third-party agreements. Enjoy the security of Ethereum at the same time, providing multiple benefits and flexibility for re-stakeholders.

Product Mechanism

For middleware For projects, EigenLayer can help them quickly cold-start the network. Even if they issue their own tokens later, they can switch to a mode driven by their own tokens. EigenLayer is like a security service provider. For DeFi, various derivatives can be built based on EigenLayer.

· EigenLayer’s product logic in the entire LST/LRT

· User flow chart through EigenLayer

Detailed explanation of EigenLayer AVS 

Another important feature in EigenLayer The new concept is AVS (Active Verification Service).

Restaking is easy to understand, but AVS is a bit complicated to understand. To understand EigenLayer’s AVS, you need to first understand Ethereum’s business model. If we look at the relationship between the Ethereum mainnet and the Ethereum ecological Rollup L2s from a business perspective, Ethereum’s current business model is to sell block space to general Rollup L2s.

Image source: Twitter 0xNing0x

General Rollup L2s, by paying GAS, package L2 status data and transactions into their smart contracts deployed on the Ethereum main network to verify the availability, and then save them in the form of calldata on the Ethereum main network, and finally by the Ethereum consensus The layer sorts and includes these state data and transactions within blocks. The essence of this process is that Ethereum is actively verifying the consistency of Rollup L2 state data.

EigenLayer's AVS just abstracts this specific process into a new concept - AVS

 Let’s look at EigenLayer’s business model. It abstracts and encapsulates the economic security of Ethereum's PoS consensus into a beggar's version (low-end model) through ReStaking. In this way, the security of the consensus becomes weaker, but the cost becomes cheaper.

Because it is a Beggar’s version of AVS, its target market group is not the general Rollup L2 that has very high consensus security requirements, but various Dapp Rollups, prophecies Machine network, cross-chain bridge, MPC multi-signature network, trusted execution environment and other projects that have low consensus security requirements. Isn’t this just PFT (Product Market Fit)?

 Image source: Twitter 0xNing0x

AVS Active Verification Service Provider Project

Currently, there are approximately AVS included in EigenLayer About 13, and more AVS service providers are joining AVS through EigenLayer's Dev documentation. These projects are highly bound to the RaaS concept. Most of them serve the security, scalability, interoperability and decentralization of the Rollup project, and some also extend to the Cosmos ecosystem.

Among them we are familiar with EigenDA, AltLayer, Near, etc. Below we list the characteristics of AVS related projects.

· Ethos: Ethos primarily bridges the economic security and liquidity of Ethereum to Cosmos. The Cosmos Consumer chain usually stakes positions natively with tokens to ensure network security. Although ATOM staking provides part of the cross-chain security (ICS), Ethos is linking the economic security and liquidity of Ethereum to Cosmos. Ethos was inspired by Mesh Security (which allows the use of staked tokens on one chain from another chain), thereby increasing economic security without the need for additional nodes. The benefit of this structure is that ETHOS will likely receive token airdrops (and revenue) from partner chains. At the same time, the ETHOS token itself will also be airdropped to ETH re-stakeholders on Eigenlayer.

·AltLayer:A new project launched in cooperation with Eigenlayer, Restaked rollup, is characterized by the introduction of three AVS: 1) fast finality; 2 ) Decentralized sorting; 3) Decentralized verification. The token economics of ALT are very clever, as ALT needs to be staked simultaneously with re-staking ETH to protect these three AVS.

· Espresso: Espresso is a sequencer focused on decentralized Layer 2. AltLayer actually integrates with Espresso, so developers have the option of using AltLayer's decentralized validation solution and using the Espresso Sequencer when deploying on the AltLayer stack.

· Omni Aims to integrate all Rollups on Ethereum. Omni introduces a “unified global state layer” protected through re-staking of EigenLayer. This state layer integrates cross-domain management of applications.

· The goal of Hyperlane is to connect all Layer1 and Layer2. Using Hyperlane, developers can build interchain applications, and Hyperlane Permissionless Interoperability allows Rollups to connect to Hyperlane themselves without the need for cumbersome governance approvals, etc.

· Blockless Adopts a network-neutral application (nnApp) that allows users to run applications while A node contributes resources to the network. Blockless will provide networking for EigenLayer-based applications to minimize accidental slashing.

Other AVS projects worthy of attention:

· Lagrange:Another competitor to LayerZero, Omni and Hyperlane, its cross-chain infrastructure creates universal proof of state on all major blockchains;

· Drosera:An "incident response protocol" for containing vulnerabilities. When a hacker attack occurs, Drosera's Trap will detect it and take action to reduce the vulnerability;

· Witness Chain:Use the re-staking function for Proof of Diligence to ensure the safety of Rollups, and Proof of Location to establish physical nodes. Centralization.

Summary of EigenLayer product features

The product features of EigenLayer can be summarized as the following points:

· EigenLayer is a "super connector" that simultaneously connects the three major sectors of Staking, infrastructure middleware and DeFi.

· EigenLayer plays the role of a bridge in the re-pledge of Ethereum and is an extension of the economic security of Ethereum encryption. The market demand and supply for EigenLayer is very solid.

· EigenDA is a pre-explored version of Danksharding, the expansion solution under Ethereum’s Rollup-centric Roadmap. Simply put, it is "the youth version of sharded storage"

EigenLayer ecological related projects

Ethereum LRT project review

Ethereum There are currently about 15 LRT protocols on the Internet, 9 of which are already online and 6 of which are still on the test network. Most of the LRT protocol still relies on Eigenlayer to obtain restaking income, which is mainly divided into 3 categories:

· Liquid-LSD Restaking: Unified management and release of user-pledged LST By entering an external Restaking protocol such as Eigenlayer, users will receive the mortgage token Liquid Restaking Token (LRT) (such protocols include KelpDAO, Restake Finance, and Renzo). This type of agreement is highly homogeneous and has limited technology and innovation.

· Liquid Native Restaking: Native liquid restaking refers to projects such as etherf.fi or Puffer Finance that provide small-amount ETH node services. The ETH is provided to EigenLayer for re-staking.

· The protocol is optimized on the basis of the Eigenlayer protocol. It also provides security and verification services, and also carries out LRT business (such protocols include SSV). The development of this type of protocol mainly depends on Since the protocol itself forms a competitive relationship with Eigenlayer, it is necessary to find a breakthrough point to attract nodes.

Most LRT protocols will start from three points in mechanism innovation:

1. Provides stronger security than Eigenlayer;

2. Eigenlayer has a distribution strategy problem: as the number of AVS increases, re-pledgers need to actively select and manage pairs The operator's allocation strategy will be extremely complex. The LRT protocol provides users with the best solution for assigning policies.

3. EigenLayer’s LST deposits are available online. There is no limit on native ETH deposits, but it is difficult for most users to obtain because it requires users to have 32 coins. ETH and run an Ethereum node integrated with EigenLayer to run EigenPods. On some LRT protocols, this restriction will be lifted.

The specific projects and situations are as follows:

Renzo

Renzo on Eigenlayer Optimized, it abstracts the complex process of restaking for end-users, and restakers do not have to worry about the active selection and management of operators and reward strategies. Help users build investment portfolios to invest in AVS allocation strategies with greater returns. Secondly, there is no upper limit for depositing tokens in Renzo, which has also become one of the main factors for the skyrocketing Renzo TVL.

Financing situation: In January, it announced the completion of a US$3.2 million seed round of financing, led by Maven 11, with participation from SevenX Ventures, IOSG Ventures, OKX Ventures and others.

Business logic:

· The user pledges ETH or LST to the Renzo protocol, and the user gains, etc. Value of $ezETH;

· Renzo will pledge LST to Eigenlayer’s AVS node, but Renzo will adjust the weight of LST pledged on the node to obtain the best income.

Current situation: No tokens have been issued yet. $ezETH belongs to its LRT token. Since it obtains re-staking benefits, the price will be higher than ETH. Currently, 217,817 have been minted. TVL  $777.7m. Regarding the handling fee issue, appropriate charges will be made based on the re-pledge proceeds. Social situation, the current number of twi fans is 51.7K.  

KelpDAO

KelpDAO is an LRT project supported by Stader Labs, and its business model is similar to Renzo. The difference from Renzo is the withdrawal method of rsETH, which takes more than 7 days, while KelpDao provides an AMM liquidity pool and can redeem $rsETH at any time.

Business logic:

· Store LST such as stETH in the Kelp protocol to exchange for rsETH token, the Node Delegator contract pledges LST to Eigenlayer's Strategy Manager contract.

· KelpDAO is linked with EigenLayer. Users who re-stake can not only obtain EigenLayer points, but also withdraw liquidity and use LRT to earn interest, while enjoying the interest-earning income of LST.

Current situation: No tokens have been issued yet, TVL $718.76m, overall performance is better than Restaking Finance. The fact that the agreement does not charge any fees is also a major advantage of KelpDAO at present. In terms of social data, twi has 23.6K fans and less interaction.

Restake Finance ($RSTK)

RSTK is the #1 on EigenLayer This is a modular liquidity re-pledge protocol that helps users place LST on the Eigenlayer project. The entire business logic is not innovative or competitive. There isn’t much new in the token economic model. The price performance of tokens has increased significantly for a period of time due to the popularity of the restaking concept and the Eigenlayer project, but it has performed poorly recently.

Business logic

· Users deposit the LST generated by liquidity staking into Restake Finance;

· The project helps users with their LST Deposit into EigenLayer and allow users to generate reaped ETH (rstETH) as a re-pledge certificate;

· Users can use rstETH to earn income in various DeFi, At the same time, you will also get points rewarded by EigenLayer (considering that EigenLayer has not yet issued tokens)

Token function

· Governance

· Staking to get dividends from protocol income

Current situation: TVL reaches $15.5 m, a total of 4,090 rstETH are in circulation, with more than 2,500 unique addresses and more than 750 users. In terms of social data, Twi has 12.8k fans and less interaction.

Puffer Finance

Thanks to Binance Labs’ investment, Puffer It has been very popular recently. Puffer Finance is an anti-slash liquidity staking protocol, which is also a type of Liquid Native Restaking product. Puffer Finance has received a seed round led by Jump Crypto, raising a total of $6.15 million in financing. Puffer will also develop Layer2 networking.

Advantages:

· Eigenlayer’s requirement for re-staking nodes is 32 ETH, and Puffer's re-pledge function lowers the threshold to 2 ETH in an attempt to attract small nodes.

· Security, secure-signer & RAVe (remote attestation verification on chain)

Business logic:

· The user pledges $ETH to obtain $pufETH, and Puffer’s Node Operators divide $ETH into two parts, with one part pledged to Ethereum. The other part of the validators participates in the re-pledge of Eigenlayer.

Current status: The staking function has been developed and minted 365,432 pufETH, TVL reaches $1.40b. In terms of community status, it is currently the project with the largest number of twi fans in the LRT protocol, 213.7K.

Liquidity staking + re-staking service

This type of project was originally in the liquidity staking competition Daozhong has already occupied a place, and the advantages of switching to the re-staking track are: 1. There is a large amount of ETH pledged in the protocol itself, which can be directly converted into re-staking tokens; 2. The user group is locked, and users no longer need to look for the LRT protocol. . Currently, Swell and Ether.fi have become the leaders among LRT projects on the Eignlayer network, taking the leading position based on deposit volume.

Other LRT protocols

Summary

Currently, many LRT protocols do not issue tokens, and the homogeneity of projects is serious. But the more optimistic ones are KelpDAO, Puffer Finance, and Ion Protocol. These three types of protocols have development routes that are obviously different from other LRT protocols. Ranking of tokens issued according to some LRT protocols, among which ether.fi has the largest number, followed by Puffer Finance and Renzo.

· From a practical benefit perspective, LRT is more like a speculative lever created for liquidity. Leverage means that there is still only one copy of the original asset, but through the mapping of tokens and the locking of equity, the original ETH can be used to continuously increase the leverage doll, and multiple derivatives certificates can appear.

·These derivative certificates have greatly revitalized liquidity in the tailwind situation and are more conducive to market speculation

· However, the various protocols that issue derivatives are connected to each other because of liquidity. Holding A can lend B, and lending B can revitalize C. Once there is a problem with Protocol A itself and the volume is large, the risks will be chain-linked.

LRT Track Future Forecast

Overall, LRT Track is a rapidly growing niche market. The LST track can provide a stable income of about 5%, which is indeed attractive during the bear market stage. The income of the LRT track still depends on the ability of Eigenlayer to provide re-pledge services, and the final income will attract users to give continued attention and capital accumulation to the LRT track. The LRT track is still in its early stages, but the projects are highly homogeneous and the track carries limited funds. It is predicted that only a few leading projects will come out in the future.

Risk:

· Risk of fines: due to malicious activity , the risk of losing staked ETH increases.

· Centralization risk: If too many stakers move to EigenLayer or other protocols, it may cause systemic risks to Ethereum.

·Contract risk: There may be risks in the smart contracts of each agreement.

· Multi-level risk superposition: This is the key issue of re-pledge. It combines the existing pledge risk with additional risks to form multi-level risks.

Future opportunities:

· LRT and other DeFi protocols Multiple combinations, such as loans.

· Security improvement: Using DVT technology can help reduce node operation risks, such as SSV and Obel;

·Multi-chain expansion: on multiple Layer2 or PoS Develop LRT protocols in the chain, such as  @RenzoProtocol  and @Stake_Stone;

References:

https://foresightnews.pro /article/detail/51837

https://www.techflowpost.com/article/detail_15548.html

https://docs.google.com/document/d/1gtVgo9n2JbnZR -HFYbnsJ9nmPUGt4SYUdPXZdNHeQBY/edit

https://www.techflowpost.com/article/detail_16101.html

https://s.foresightnews.xyz/article/detail/52874

https://www.odaily.news/post/5192591

https://twitter.com/0xNing0x

https://twitter.com/tmel0211

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