Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
Last week, we touched on the restaking mania resulting from speculation around an EigenLayer airdrop in 2024. EigenLayer is a protocol known for introducing restaking on Ethereum, a new primitive in cryptoeconomic security enabling the reuse of ETH on the consensus layer.
Anyone can deposit a liquid staking token (LST) into EigenLayer smart contracts to restake their LST and extend cryptoeconomic security to other applications on the network to earn additional rewards. If this works as designed, the future of EigenLayer looks like a primitive that sits between Ethereum Mainnet and any chain imaginable (even non-EVM) that wants to “borrow trust” from the security of Ethereum.
This will result in a kind of trust marketplace where LST holders are “lenders” and L1s/L2s/L3s are “borrowers” paying fees. A great place to start learning about EigenLayer is this episode of The Edge Podcast I recorded with the Founder Sreeram Kannan.
Fast forward to December 2023, EigenLayer announced two major developments: the addition of 6 new LSTs for restaking and a lift on the deposit caps for LSTs restaking into EigenLayer on December 18th.
The irony of these deposits into EigenLayer is that when ETH LSTs “restake,” they’re not actually restaking yet. EigenLayer’s products are not live–yet. Even more ironic is that anyone restaking LSTs loses in EigenLayer loses the feature they originally sought out in holding LSTs–liquidity.
Up until recently, it has been a challenge for ETH LST holders (stETH, rETH, cbETH) to get their LSTs deposited in EigenLayer given so much interest to participate. On EigenLayer’s first day of deposits in June 2023, 3200 ETH worth of stETH was deposited in the first hour! This new deposit cap raise has led to another rush of participants and new competition to get their LSTs “restaked.”
In my last post, we covered one of my favorite liquid restaking tokens (LRTs) eETH by ether.fi. Another major LRT making waves is rsETH by Kelp DAO. Restakers can deposit their stETH or ETHx to mint rsETH tokens indicating fractional ownership of the underlying assets while rsETH contracts distribute the deposited tokens to different Node Operators that operate within the Kelp DAO.
rsETH works similar to eETH and other ETH LSTs where it accrues rewards while tracking the underlying price of the staked ETH tokens. Restakers can hold rsETH as a transferable utility token to possibly provide liquidity or maybe use as collateral for leverage in the near future.
rsETH holder earn 4 rewards:
- ETH staking yield
- ETH restaking yield
- EigenLayer Restaking Points (assuming a future EigenLayer airdrop)
- Kelp Miles (assuming a future Kelp airdrop)
Another detail to note is rsETH holders who deposited ETHx are earning bonus EigenLayer staking points thanks to Stader Labs depositing its treasury of ETH into EigenLayer. In other words, Stader Labs’ treasury of ETH is earning additional points on EigenLayer which will be reallocated to rsETH holders who minted rsETH using ETHx (see tweet below).
Because the cap for 200k stETH has already been reached on EigenLayer, it leaves ETHx by Stader as the only option to mint rsETH. There is currently a cap of 50k ETHx to be…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
