Top Liquid Restaking Protocols of 2024

​​Before diving into liquid restaking, it's essential to understand the foundation it's built on: Proof of Stake (PoS). PoS is a consensus mechanism used by certain blockchain networks to achieve distributed consensus. It requires users to lock up a portion of their tokens as a stake in the network. The size of one's stake determines the likelihood of being chosen to validate transactions and create new blocks, thus securing the network. In return for their commitment and contribution to network security, stakers earn rewards, often perceived as interest on their staked assets.

 

Liquid restaking expands upon the conventional staking model by introducing a mechanism where the tokens received from staking—known as Liquid Staking Tokens (LSTs)—can be further utilized in the DeFi space. These LSTs represent the staked assets and are designed to be liquid, meaning they can be readily traded or used across a variety of DeFi platforms. 

 

This process distinguishes itself from liquid staking primarily in how these tokens are then used: Liquid restaking specifically involves taking these liquid tokens and reinvesting them into other yield-generating opportunities without sacrificing your initial staking position, enhancing both liquidity and potential earnings within the ecosystem.

 

How Does Liquid Restaking Work? 

Liquid restaking advances the innovation of liquid staking in the cryptocurrency domain by not only providing the benefits of staking with enhanced liquidity but also amplifying the utility and yield potential of staked assets. While liquid staking allows investors to stake their cryptocurrencies and receive a liquid token (often called a Liquid Staking Token or LST) that represents their staked assets, which can then be traded, sold, or used in various DeFi protocols, liquid restaking takes this a step further. In addition, liquid staking derivatives (LSDs) lower the entry barrier for ETH stakers, as they don’t require the minimum 32 ETH that is needed for native staking. 

 

After obtaining LSTs, liquid restaking involves using these tokens to engage in additional yield-generating activities within the DeFi ecosystem. This process issues a new type of token, the Liquid Restaking Token (LRT), which embodies the original staked assets plus the potential for increased returns from these subsequent investments. Liquid restaking thus offers a deeper level of flexibility, allowing investors to compound their earnings by participating in multiple DeFi protocols without needing to unstake their primary assets, striking a sophisticated balance between securing network operations through staking and pursuing broader investment opportunities.

 

To put it simply, liquid restakig nvolves the following steps: 

 

1. Stake your crypto: Lock up your PoS token to help keep a blockchain network secure and running smoothly.

2. Get a token: Receive an LST that represents your staked coins. This token is liquid, meaning it's easy to move around and use in the DeFi space.

3. Restake: Use your LST to join in on other earning adventures in DeFi, without having to pull out from your original staking.

You're essentially getting the best of both worlds: securing the network and having the freedom to explore more earning paths.

 

The advantages of liquid restaking include increased liquidity and capital efficiency, as well as the potential to earn additional yields by using the LSTs in other DeFi protocols. However, it also introduces new risks, such as the reliance on the underlying protocol's security and the potential for market volatility affecting the liquid tokens.

 

The evolution from traditional staking to liquid staking and, ultimately, to liquid restaking reflects a continuous effort to maximize the capital efficiency and reward potential of blockchain assets:

 

• Traditional Staking: Involves locking cryptocurrencies to support network security and operations, with rewards as the primary incentive.

• Liquid Staking: Offers a more flexible approach by providing participants with LSTs in exchange for their staked assets, allowing for liquidity and continued participation in the DeFi market.

• Liquid Restaking: Builds upon liquid staking by enabling the further utilization of LSTs in additional yield-generating activities, encapsulating the dual advantages of liquidity and enhanced earning potential.

 

The key differences lie in accessibility, liquidity, and capital efficiency:

 

• Accessibility: Liquid restaking makes it easier for users to participate in staking without giving up access to their assets.

• Liquidity: It offers immediate liquidity through the issuance of a liquid token, unlike traditional staking, where assets are locked.

• Capital Efficiency: Users can potentially earn double rewards—both from staking their assets and from using the liquid tokens in other DeFi activities.

Explore the best liquid staking protocols on Ethereum. 

 

The distinction between a Liquid Staking Token (LST) and a Liquid Restaking Token (LRT) lies in their respective roles and uses within the DeFi ecosystem, especially concerning staked assets and their further utilization:

 

• Liquid Staking Token (LST): Represents a tokenized version of staked assets, offering liquidity and flexibility for participation in DeFi activities without needing to un-stake the original assets.

• Liquid Restaking Token (LRT): Symbolizes the reinvestment of LSTs into further DeFi opportunities, capturing the essence of compounded investments and the potential for increased returns.

In summary, while LSTs provide liquidity and flexibility to staked assets, allowing them to be used within the DeFi space, LRTs represent a further layer of investment by using these liquid staking tokens to engage in additional DeFi activities, potentially increasing the returns on the originally staked assets through compounded restaking strategies.

 

Here are some of the most popular liquid restaking protocols to try out or potentially invest in. We’ve curated the list based on their total value locked (TVL), features, and adoption rate: 

 

1. Etherfi 

 

Etherfi (ETHFI) is the largest liquid restaking protocol in the market, boasting a TVL of over $2.8 billion at the time of writing. It leverages Ethereum's proof-of-stake blockchain to enhance security across other networks and protocols. It differentiates itself through its innovative approach, allowing users to stake ETH and receive eETH. This native liquid restaking token on Ethereum facilitates participation in the broader DeFi ecosystem while maximizing staking and restaking rewards. By partnering with EigenLayer, Etherfi extends its capability, enabling ETH stakers to contribute to the validation of various Ethereum-based software modules, promoting a more decentralized and secure network infrastructure​​​​. Launched on March 18, 2024, the Etherfi airdrop encourages users to stake Ethereum, earn loyalty points, and engage with integrated DeFi protocols, significantly boosting their potential rewards through the Ether.fi ecosystem​​.

 

Financially, Etherfi's prominence is underscored by its successful $23 million Series A funding round, led by Bullish Capital and CoinFund, signaling strong market confidence in its liquid restaking solution. This funding milestone followed a remarkable growth in its total value locked, which surged from $103 million to $1.66 billion, evidencing the protocol's rapid adoption and the increasing interest from the crypto community. Etherfi's commitment to innovation and contribution to the DeFi landscape position it as a pivotal player in the ongoing evolution of the Ethereum ecosystem​​.

2. EigenLayer 

 

With a TVL exceeding $1.5 billion, EigenLayer is an innovative protocol built on the Ethereum blockchain, designed to enhance cryptoeconomic security through restaking. It allows Ethereum stakers to extend their staked ETH or LSTs beyond Ethereum to secure additional applications on the network. This is achieved by opting into EigenLayer smart contracts, enabling stakers to earn extra rewards by simultaneously providing pooled security to various services. This mechanism not only augments the security of those services but also increases capital efficiency for stakers, allowing them to leverage the same capital to earn rewards from multiple protocols. This model addresses the fragmentation of security across different services, presenting a unified solution to secure decentralized services without the need to bootstrap a new trust network​​.

 

EigenLayer's approach offers several benefits, including bolstered protocol security, flexibility for developers, and enhanced capital efficiency for stakers. By tapping into Ethereum's security layer, it significantly elevates the trust and security for protocols built on or integrated with it. Developers gain the freedom to innovate without constraints on their architecture, and stakers benefit from the ability to earn rewards across various protocols using the same staked ETH, further incentivizing participation in the ecosystem. However, it's crucial to be aware of potential risks such as slashing, centralization, and yield risks that could impact stakers and the Ethereum network at large. EigenLayer's EigenDA project also showcases its capability to significantly reduce gas fees on Ethereum Layer 2 solutions by providing a decentralized data availability layer secured by Ethereum, marking a significant advancement in blockchain scalability and efficiency​​.

 

Learn more about EigenDA and other data availability layer protocols. 

 

3. Pendle 

 

Pendle operates as a pioneering protocol within the decentralized finance (DeFi) sector, specifically focusing on the tokenization and trading of yield. At its core, Pendle enables users to tokenize yield-bearing assets, dividing them into Principal Tokens (PT) and Yield Tokens (YT), which can be traded independently. This unique approach allows users to speculate on and manage the yield of their investments in a more flexible manner. For example, users depositing wstETH (wrapped staked ETH) into Pendle receive PT-wstETH and YT-wstETH, representing the principal and yield components, respectively. 

 

Users can then trade these tokens based on their market predictions, taking positions on the future yields of these assets. The Pendle Automated Market Maker (AMM) facilitates efficient trading of PTs and YTs, offering a marketplace that underpins the entire ecosystem. This innovative mechanism supports concentrated liquidity and auto-routing to enhance capital efficiency and minimize impermanent loss, a common risk in liquidity provision​​.

 

Pendle has also capitalized on the speculative frenzy surrounding the EigenLayer airdrop, demonstrating its capability to adapt to and benefit from market dynamics. This surge in activity has been particularly evident with the significant increase in deposits of eETH. This liquid restaking token (LRT) soared from around $1 million to over $129 million due to speculators betting on leveraged exposure to the upcoming airdrop. The protocol's design, which splits deposited tokens into a principal component and a yield component, aligns with traders' strategies to maximize returns from speculative events. It has resulted in a remarkable 2,076% surge in Pendle's native token value over the past year, highlighting the protocol's popularity and the robustness of its economic model. 

4. Restake Finance 

 

Restake Finance introduces itself as the first modular liquid staking protocol specifically designed for EigenLayer, marking a significant advancement in the liquid staking domain. It pioneers the concept of rehypothecation in DeFi, allowing LSTs to be utilized as cryptoeconomic security for actively validated services within the EigenLayer ecosystem. This innovative approach enables users to earn both Ethereum staking rewards and EigenLayer native rewards without the need to lock up their assets or maintain staking infrastructure. By depositing LSTs, such as stETH, into Restake Finance, users receive rstETH, a tokenized representation of their EigenLayer contribution, which is always fully backed on a one-to-one basis by stETH. The protocol facilitates earning on Ethereum while simultaneously contributing to EigenLayer's validation, all through DAO-controlled smart contracts​​.

 

The governance and operational framework of Restake Finance is underpinned by its DAO (Decentralized Autonomous Organization), ensuring the project remains true to its decentralized ethos and aligns with the community's interests. The RSTK token serves dual purposes within this ecosystem, acting as both a utility and governance token. Token holders are empowered with governance rights and a share in the protocol's earnings, with a system in place to apply fees on all EigenLayer restaking rewards, which are then distributed among RSTK holders. This structure aims to maximize value accrual for token holders through governance participation and yield generation, positioning Restake Finance as a leader in the rehypothecation finance narrative by continuously optimizing and innovating yield creation strategies​​​​.

 

5. Puffer Finance 

 

Puffer Finance emerges as a significant player in the liquid restaking domain, designed as a native liquid restaking protocol (nLRP) that capitalizes on the EigenLayer framework. It initiates with a default module focusing on Proof of Stake (PoS) validation without engaging in restaking, deemed the "risk-free" option. Over time, Puffer plans to expand its repertoire by introducing new restaking modules, which are closely monitored and managed by its governance system. This approach allows stakers to deposit ETH and receive pufETH, an LST that not only embodies PoS rewards but also restaking rewards. This dual-reward mechanism aims to offer its holders a more lucrative earning potential, with the value of pufETH potentially increasing over time as new validator tickets are issued and restaking rewards are accrued​​.

 

Rapidly gaining traction, Puffer Finance locked $850 million in TVL, positioning itself as the second-largest liquid staking protocol on the Ethereum network within a mere 13 days of its launch. This swift rise to prominence is credited to its user-friendly approach to Ethereum staking, offering innovative features like anti-slashing technology and a permissionless validator setup. With strong backing from notable entities such as Binance Labs and a significant TVL of over $1.26 billion at the time of writing, Puffer Finance demonstrates a potent combination of security, profitability, and ease of use. Its rapid growth, underscored by a strategic points program to boost user engagement, showcases Puffer's potential to reshape the liquid staking landscape on Ethereum​​​​.

 

6. Renzo Protocol

 

Enjoying a TVL of over $1 billion, Renzo Protocol operates within the burgeoning field of DeFi as a Liquid Restaking Token (LRT) and Strategy Manager for EigenLayer, a platform designed to enhance Ethereum's capabilities by supporting Actively Validated Services (AVSs). The Renzo protocol serves as a crucial interface to the EigenLayer ecosystem, promising users higher yields than traditional Ethereum staking by streamlining the restaking process. It abstracts the complexities involved, enabling straightforward collaboration between users and EigenLayer node operators. This approach not only facilitates permissionless innovation on Ethereum but also aims to programmatically secure trust within the ecosystem, with Renzo positioned as a pivotal promoter for EigenLayer's widespread adoption​​.

 

Renzo's launch was met with significant interest, raising $3.2 million in a seed funding round to further develop its liquid restaking protocol on EigenLayer. This financial backing, contributed by several prominent cryptocurrency-focused funds, including Maven11 and Figment Capital, underscores the growing demand for innovative liquid restaking solutions. Through a combination of smart contracts and operator nodes, the protocol offers automated liquid restaking strategies that simplify liquidity management, allowing users to engage in Ethereum staking and explore restaking opportunities with ETH and LSTs. Renzo's future plans include the implementation of a DAO to oversee operations and strategy, as well as the introduction of ezETH. This restaked ETH position token integrates with DeFi to generate rewards in various currencies. This innovative approach has already attracted over 2,000 users, who have collectively deposited around $20 million worth of ETH into the protocol, signaling Renzo's potential to become a significant on/off ramp for Ethereum restaking​​.

7. Kelp DAO 

 

Kelp DAO is an innovative liquid restaking platform focused on enhancing the flexibility and liquidity of staked Ethereum assets through its Liquid Restaked Token (LRT), rsETH, developed on the EigenLayer framework for Ethereum. Founded by Amitej G and Dheeraj B, the minds behind Stader Labs, Kelp DAO aims to simplify participation in liquid restaking solutions for public blockchain networks. The platform’s rsETH token provides a mechanism for users to stake their LSTs and receive rsETH in return, representing fractional ownership of the underlying assets. This system allows for the distribution of staked tokens among various Node Operators associated with Kelp DAO, facilitating the accrual of rewards from different services directly to the rsETH contracts​​.

 

Kelp DAO has quickly distinguished itself in the DeFi space, boasting over $628 million in TVL, with a notable community of more than 15,000 rsETH holders. The platform has managed to channel over 10% of all EigenLayer deposits through Kelp within the first 15 days of its launch. Kelp DAO's approach prioritizes accessibility, removing fees for LST deposits and offering a user-friendly process for engaging with Ethereum staking and restaking. Moreover, its rsETH token operates within a robust security framework, highlighted by multiple audits, including a significant one conducted by Code4rena, underlining the platform's commitment to risk management and platform integrity. Kelp DAO not only supports a variety of staking strategies by accepting tokens like ETH, stETH, and sfrxETH but also innovates with the KEP token to improve liquidity and asset management within the ecosystem​​.

 

8. Swell Liquid Restaking 

 

Swell is a prominent liquid restaking protocol within the DeFi sector, enjoying a TVL of over $150 million. It offers an LRT named rswETH, which enables users to earn Ethereum staking rewards and native restaking yield from EigenLayer without locking up their liquidity. The protocol facilitates users to stake or restake their ETH to secure Ethereum and EigenLayer's Actively Validated Services (AVSs), respectively, for additional rewards. Upon staking, participants receive swETH (LST) or rswETH, both of which appreciate in value as rewards accrue. Swell aims to optimize yield for its users by allowing the tokens to be used within its ecosystem to earn further yields​​​​.

 

Swell stands out for its no-fee policy on LST deposits. It has developed a robust ecosystem in collaboration with major blockchain auditors and risk management firms to ensure platform security and integrity. The protocol has collaborated with leading names like AltLayer, EigenDA, and Chainlink to launch a Layer-2 restaking rollup, indicating its commitment to innovation and security within the liquid staking domain. Swell's approach to liquid restaking emphasizes user yield optimization, platform security, and seamless integration within the broader DeFi landscape, making it an attractive option for users looking to leverage their Ethereum assets more efficiently​​​​.

 

9. Inception 

 

The Inception liquid restaking protocol, operational on the Ethereum Mainnet, introduces an innovative approach to liquid staking for LSTs like stETH and rETH. Central to its design is the issuance of Isolated Liquid Restaking Tokens (iLRTs), which can be traded and utilized within DeFi applications independently from their underlying LSTs. This feature is particularly notable for its ability to mitigate risks commonly associated with pooled restaking strategies, such as increased complexity and counterparty risk.

 

Inception's mechanism involves a user depositing stETH or rETH into the Inception Vault, which then interacts with the EigenLayer through a series of strategic deployments and delegations to specific node operators. This process culminates in the minting of either LRTs or rNFTs for the user, depending on the chosen restaking strategy. Benefits touted include heightened liquidity and the potential for improved yields through restaking rewards, and DeFi yield farming with multiple iLRTs. Additionally, Inception aims to reduce exposure to risks and increase transparency and auditability compared to other LRT models. The protocol charges a fee on the rewards generated through restaking, allocating parts to both the protocol treasury and vetted node operators, and aligning incentives across the ecosystem​​​​.

 

When selecting a liquid restaking protocol, consider the following factors:

 

• Security: Look for protocols with a strong security track record and robust smart contract audits.

• Supported Assets: Choose a protocol that supports the cryptocurrencies you wish to stake, e.g., Etherfi for restaking Ether-based assets.

• Rewards: Compare the APYs and structures across different protocols to find the most advantageous.

Additionally, consider the protocol's ease of use, community strength, and the transparency of its operations to make a well-informed decision.

 

Liquid restaking protocols offer a way to increase liquidity and flexibility for staked assets, but higher yield come with higher risks. Here are some risks associated with liquid restaking:

 

1. Smart Contract Risk: As with any DeFi protocol, liquid restaking involves complex smart contracts. Bugs or vulnerabilities in these contracts can lead to significant losses for users.

2. Liquidation Risks: Sharp market fluctuations can trigger automatic sell-offs or liquidations of the staked assets at unfavorable prices, leading to cascade losses across the protocols you put a stake in.

3. Liquidity Risks: Challenges in converting restaked tokens to original staking tokens or other assets can arise, potentially affecting market prices. This is often due to limited market depth and extended lock-up periods, which restrict the immediate availability of these assets for trading.

4. Depegging Risks: There's a risk of tokens, which represent staked assets, losing their value alignment with those assets. This can occur due to various factors, including collateralization issues, vulnerabilities in smart contracts, and shifts in market sentiment and speculation, leading to price discrepancies.

5. Slashing Risk: In some protocols, if the validators associated with the staked assets violate network rules, the original staking tokens could be slashed, affecting the value of the liquid restaked tokens.

6. Regulatory Risk: Changes in regulatory landscapes across jurisdictions can impact the operation and accessibility of liquid restaking services.

7. Counterparty Risk: When restaking involves lending or borrowing activities, there's a risk associated with the counterparty's ability to fulfill its obligations.

Liquid restaking represents a promising innovation in the DeFi market, offering a blend of traditional staking rewards with the added benefits of liquidity and flexibility. By carefully choosing a protocol and being aware of the associated risks, investors can potentially enhance their crypto earnings while participating in network security. Always conduct thorough research and consider your risk tolerance before diving into the world of liquid restaking.

 

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