How EigenLayer Redistributed the Liquid Staking Cards

April 17, 2024

Liquid staking has changed the game, breathing new life into the DeFi (decentralized finance) sector by unlocking liquidity from staked assets. Funds that were previously locked in staking could now be freely traded and leveraged in multiple yield farming strategies.

The next evolutionary step in the sector was taken by EingenLayer, a protocol responsible for the introduction of liquid restaking. Offering users the chance to restake their native ETH or ETH LSTs, EigenLayer shuffled the deck and redistributed the cards by imposing limits and caps on LSTs, forcing users to reevaluate their staking and liquid staking positions

In this blog post, we will explain the concept of caps and how native liquid restaking offers ETH holders a simple and secure method to compound yield rewards.

The Rise of Native Liquid Restaking

Native Liquid Restaking Tokens (nLRT) represent a pivotal upgrade from traditional Liquid Staking Tokens (LSTs).

Unlike LSTs, which merely tokenized staked assets for liquidity, nLRTs offer stakeholders the opportunity to earn yields from both Layer 1 protocols and EigenLayer's Actively Validated Services (AVS), effectively addressing previous market inefficiencies.

The key advantages of LRTs include enhanced liquidity, improved security, and access to superior yields, fundamentally changing how assets are staked and rewards are distributed.

Implementing Caps in EigenLayer

EigenLayer introduced the concept of caps within its protocols to manage risk and ensure system stability. Caps are essentially limits imposed on the amount of assets that can be staked under certain conditions, preventing the oversaturation of the market and protecting against systemic risks.

This prudent approach has fostered a more secure and stable restaking environment, contributing to the overall health of the DeFi ecosystem. In February, EingenLayer temporarily removed its 200,000 ether (ETH) per-protocol restaking cap, resulting in a staking frenzy that led to $750 million in TVL (Total Value Locked) being added in a matter of hours.

Impact on the LST Market

Offering an additional staking product that not only promises better yields but also enables broader participation in securing DeFi protocols, LRTs have forever changed the staking landscape.

[1] - EigenLayer Framework (Source)

nLRTs bring all of these advantages of liquid staking but with the added perk of accessibility and simplicity. By enabling users to restake native ETH directly, nLRTs open up restaking to all Ethereum holders.

This means that users who have not participated in liquid staking and own no LSTs can participate directly in restaking through nLRTs. Breaking down adoption barriers for liquid restaking, nLRTs have furthered the composability of the DeFi space and enhanced the utility of assets across multiple protocols.

The implementation of caps further increases this dynamic by ensuring protocol security, encouraging diversification, and altering stakers' strategic behaviors.

InceptionLRT’s Approach to Restaking

InceptionLRT recognizes the evolving landscape of staking strategies, emphasizing the importance of deeper integration with the DeFi ecosystem.

By aligning with EigenLayer, we leverage the platform's innovations to better our offerings, signaling a shift towards more integrated and efficient staking solutions. This collaboration highlights not only the value of LRTs but also how future developments in liquid restaking can continue to disrupt the broader DeFi market.

The best DeFi has to offer

As the market continues to evolve, stakeholders are encouraged to explore these new opportunities and consider how they might integrate these advanced strategies into their investment portfolios.

We are here to guide our users every step of the way, helping them take full advantage of native liquid restaking so they can compound multiple rewards while helping the DeFi ecosystem thrive.