What decides liquid restaking winners: LRT liquidity, airdrops, AVS choice
Quote835 words
Lists the factors behind LRT protocol success: airdrops, LRT liquidity and DeFi integrations, APY, AVS selection and security. Argues ether.fi keeps leading on first-mover TVL and liquidity, and that liquid restaking will end up less concentrated than liquid staking, where Lido dominates.
Key claims
ether.fi TVL kept growing after its token launch
Renzo's ezETH depeg showed disappointed airdrop expectations plus thin liquidity can cascade through lending markets
Liquid restaking will be more decentralized than liquid staking
Honestly interested in what will be the decisive factors for people to choose restaking protocols and what will be the key determinants for success in the space. 🤔
Let me elaborate on a few of my thoughts. ♾ ✨
There is a number of things that could potentially be worth taking into account when choosing a liquid restaking protocol, which includes:
✦ Airdrop of the restaking protocol itself
✦ Liquidity of the LRT you get
✦ DeFi integrations / utility of the LRT you get
✦ Overall APY earned in % (staking + restaking (+ LRT points))
✦ Which specific AVS protocols secured and AVS tokens / airdrops
✦ Security (e.g. enabled withdrawals, tranched delegation, etc.)
✦ Supported execution layers (e.g. L2s) to restake on
✦ +++
Anticipation of the airdrops of the restaking protocols themselves is a powerful marketing and user acquisition tool.
However, this is only temporary and once the token is launched, incentive programs have to be well-designed to compete with the prospect of a new shiny token elsewhere to retain mercenary capital that is primarily chasing the magic internet money rewards.
Recently, @renzoai also impressively proved how a combination of disappointed airdrop expectations and thin liquidity can have catastrophic (short-term) impacts on the peg of $ezETH, which subsequently has ripple effects throughout lending markets, causing liquidation cascades and millions of dollars in losses.
Carefully managing expectations and incentives is definitely key. But there is more.
I do believe as well, that network effects are powerful in this space and that protocols that manage to amass large TVL pools early, are in an exceptionally strong position.
This is primarily due to the superior liquidity of their LRT, which makes it attractive for use cases across DeFi as well. The latter is a bit of a chicken or egg question though.
Learn more about LRT liquidity here: t.co/FVWQlrSMqN
Beyond that, I think more mature offerings that are live on mainnet, that are delegating to operators which secure AVS protocols and that have withdrawals enabled, generally have convincing arguments to retain staked capital, especially if coupled with abundant liquidity for the LRT and adoption across DeFi.
A good case study to look at is @ether_fi, which was the first major LRT protocol to launch its governance token $ETHFI.
As a first mover on native restaking and with a well-executed GTM strategy, @ether_fi managed to take the lead in terms of TVL and has established itself as the largest LRT issuer in the space.
Due to the strong $eETH liquidity and a broad spectrum of (high-quality) DeFi integrations and with one of the most mature products (withdrawals enabled, reducing de-peg risk), @ether_fi TVL has continued to grow, even after the launch of the token. This indicates that many restakers stay loyal rather than moving to @renzoai, @KelpDAO or @puffer_finance.
While that might be surprising to some, it does make sense. Realistically, most LRT protocols will drop their tokens in the coming weeks, which doesn't leave much room for points farming anymore.
Also, we have to keep in mind that restaking is not only attractive because of potential LRT airdrops though. Equally, AVS protocols are likely to airdrop to the operators that secure their networks (and obv pay for services they use). This in turn will result in an airdrop token distribution to restakers of specific LRT protocols.
Let's think about @lagrangedev as an example. If you are bullish on its parallel prover built on @eigencloud and you really want that airdrop, it makes sense to restake with a protocol that secures the @lagrangedev AVS. For example, @ether_fi.
For an overview of the AVS landscape, have a look here: t.co/tOx7zaXJnB
While there are also other restaking protocols that have already committed to secure certain AVS protocols and delegated accordingly, @ether_fi is definitely one of the places where you are early.
Combined with the before-mentioned security considerations and a broad presence across L2 ecosystems, @ether_fi will likely remain the leader of the restaking space, with unfolding network effects solidifying this position.
For new entrants or protocols that want to grow in TVL, it remains to be seen which verticals (from the above list) are the best to play and what the differentiating factors will be.
I do expect us to witness a fair share of vampire attacks and innovative incentive mechanisms that might shift power dynamics from time to time and I think overall, the liquid restaking space will be more decentralized than liquid staking sector, where @LidoFinance is clearly the dominant force.
At the end of the day there are many variables to consider though and especially the choice of AVS protocols and the prospective airdrops that restakers might be farming could have a powerful impact as well.
Hence, it will likely be a combination of the above listed factors but free money and innovative marketing will probably be the decisive element for TVL flows here (as almost always in this space).
Curious to hear what you guys think. Let me know in the comments! 💬
QUOTING @zerokn0wledge_
✨ ♾ The Ultimate EigenLayer AVS Mainnet Guide ♾ ✨ @eigencloud is the main narrative of the cycle and $EIGEN is here. The next big opportunity is AVS protocols (and airdrops). Are you ready anon? 👀 t.co/hovP5CLRcf
✨ ♾ The Ultimate EigenLayer AVS Mainnet Guide ♾ ✨ @eigencloud is the main narrative of the cycle and $EIGEN is here. The next big opportunity is AVS protocols (and airdrops). Are you ready anon? 👀 t.co/hovP5CLRcf
What came next · since 01 May 2024
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