Re-staking and liquidity re-staking: Unlocking additional earnings from Ethereum staking

Introduction

Re-staking and liquidity re-staking have recently garnered widespread attention, especially against the backdrop of potential benefits brought by ETH ETF. According to statistics from data platforms, the total locked value of these two categories (TVL) is growing rapidly, ranking fifth and sixth among all DeFi categories respectively. Before delving into the additional benefits brought by re-staking and liquidity re-staking, let's first understand their basic principles.

Background of Staking and Liquidity Staking

Ethereum staking refers to putting ETH to secure the network and earn additional ETH rewards. While staking ETH can generate returns, it also carries the risk of being penalized, as well as issues of insufficient liquidity due to the unstaking period.

To become a validator, individual stakers need an initial capital of 32 Ether, which is a high threshold for many. Therefore, some platforms offer pooled staking services that allow multiple users to combine their ETH to meet the minimum staking requirement.

Although these services allow staking any amount of ETH, the staked ETH remains in a "locked" state until it is unstaked, which takes a few days (. Liquidity staking has emerged as an innovative solution, minting a liquidity token in exchange for users' ETH deposits. The liquidity tokens represent the staked ETH, which will accrue rewards and can be used to participate in DeFi activities to increase yields.

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The Rise of Re-staking

Re-staking is a new concept that involves using staked ETH to secure modules that cannot be deployed or verified on the Ethereum Virtual Machine )EVM(, such as sidechains, oracle networks, and data availability layers. These modules typically require Active Verification Services )AVS(, which are secured by their own tokens and face issues like the need to establish their own secure networks and lower trust models. Re-staking addresses this problem by drawing security from the large validator set of Ethereum.

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Overview of Re-staking Protocol

The main current re-staking protocols include EigenLayer, Karak, and Symbiotic. They have some differences in terms of supported assets, security models, execution layers, and supported chains.

• EigenLayer currently only supports ETH and ETH liquid staking tokens )LST(, while Karak and Symbiotic support a broader range of assets.
• EigenLayer provides higher security, while Karak and Symbiotic offer more flexible security options.
• The core smart contracts of EigenLayer and Karak are upgradable, while the core contract of Symbiotic is essentially immutable.
• Karak supports deposits on 5 chains, while EigenLayer and Symbiotic mainly support Ethereum.

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Liquidity Re-staking Overview

The main liquidity re-staking protocols include EtherFi, Renzo, Puffer, Kelp, Eigenpie, Swell, and Mellow. They vary in terms of liquidity re-staking token types, supported deposit assets, DeFi integration levels, Layer 2 support, and more.

These protocols allow users to deposit ETH or other assets to obtain liquidity staking tokens )LRT(. LRT can be used within the DeFi ecosystem, providing users with additional earning opportunities.

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Growth of Re-staking

Since the end of 2023, re-staking deposits have surged. The liquidity re-staking ratio ) liquidity re-staking's TVL/re-staking's TVL ( has exceeded 70%, indicating that most of the liquidity for re-staking is conducted through liquidity re-staking protocols.

However, there have been some signs of capital outflow recently, which may be related to the token generation event )TGE( and airdrops. With the introduction of new re-staking protocols such as Karak and Symbiotic, funds may flow between different protocols.

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Conclusion

As of July 1, 2024, approximately 13.4 million ETH ) worth 460 billion dollars ( are staked through liquidity staking platforms, accounting for 40.5% of all staked ETH. Currently, the ratio of re-staking to liquidity staking is about 35.6%.

As more services go live on the re-staking protocol and offer rewards, yield seekers may be attracted. In the future, re-staking platforms may lift deposit limits and expand to other assets, potentially attracting more capital inflow.

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