Author: DONOVAN CHOY; Translator: Plain Blockchain
The re-staking war is heating up. Challenging EigenLayer’s monopoly is a new protocol, Symbiotic, supported by Lido. This newcomer brings competitive advantages in protocol design and business development collaborations. Before delving into the new competitive landscape in the restaking domain, it’s crucial to first understand the key risks within the existing system.
1. Current Challenges in Restaking
Here’s how restaking operates today: Bob deposits ETH/stETH into liquidity restaking protocols like Ether.Fi, Renzo, or Swell, which then delegate it to EigenLayer’s node operators to secure one or more AVS, generating returns for Bob.
A compounded risk exists in the current system due to its one-size-fits-all nature. EigenLayer’s node operators manage assets worth thousands, used to validate multiple AVS. This means Bob has no say in the risk management of the AVS chosen by node operators.
While Bob can attempt to select a “safer” node operator, these operators compete fiercely with hundreds of others, all vying for your restaking collateral and incentivized to validate as many AVS as possible to maximize returns.
This competitive environment may lead to an undesirable outcome: each node operator protects what they perceive as foolproof AVS. When such an AVS is compromised and undergoes slashing events, Bob is impacted regardless of which operator he chooses.
2. Introduction of Mellow Finance
Mellow partially addresses this issue. Dubbed “modular LRT,” Mellow serves as an intermediary layer in the restaking stack, offering customizable liquidity restaking vaults. With Mellow, anyone can become their own Ether.Fi or Renzo and launch their own LRT vaults. Third-party “curators” on Mellow have full control over which restaking assets they accept, allowing users to choose based on their risk preferences and pay fees accordingly.
Here’s a practical example: Alice, a passionate DOGE enthusiast, seeks returns on her DOGE assets. On Mellow, she finds a vault named DOGE4LYFE. She deposits her DOGE into the DOGE4LYFE vault, earns restaking returns, pays a small fee to operators, and receives an LRT Token called rstDOGE, usable as collateral in DeFi. Currently, this isn’t possible because EigenLayer does not whitelist DOGE. Even if Sreeram eventually accepts DOGE, the incentive imbalance issues faced by node operators persist.
Similar services have been seen in DeFi borrowing platforms like Morpho and Gearbox or the now-defunct Fuse protocol from the previous DeFi cycle. For instance, Morpho enables the creation of borrowing vaults with customized risk parameters, allowing users to borrow assets from vaults with unique risk features rather than from a single risk pool like Aave. Aave also plans to upgrade its protocol in the upcoming V4 update by segregating borrowing pools.
Since Mellow is merely an intermediary restaking protocol, assets in its vaults must be restaked somewhere. Interestingly, Mellow has chosen to strategically partner with the upcoming restaking protocol Symbiotic instead of EigenLayer. Supported by Lido’s venture arm cyber•Fund and Paradigm (also a Lido supporter), Symbiotic stands out by allowing multi-asset deposits of any ERC-20 token, making it the most permissionless protocol to date. Any token from ETH to the most obscure memecoin can be used as restaking collateral to secure AVS. This could potentially open the floodgates to cryptocurrency speculation: imagine a Mellow vault secured by restaking DOGE collateral to protect Symbiotic’s AVS.
3. Mellow x Symbiotic x Lido Strategy
Despite the technical feasibility of all this, it overlooks the modular nature of Mellow’s product, which allows for an infinite combination of restaking returns curated by third-party vault creators. Here, the integration reasons for Mellow with Symbiotic become clear, as assets remain restricted on other restaking protocols like EigenLayer or Karak.
Numerous curators have already joined Mellow, launching their own LRT vaults. Notably, most curators use stETH as collateral, given Lido’s deep collaboration with Mellow (details to follow).
Except for two vaults from Ethena accepting sUSDe and ENA, Mellow has successfully attracted Ethena—their first sUSDe vault is already fully subscribed.
The final part of Mellow’s strategy lies in its participation in the recently announced “Lido Alliance,” an official guild aligned with the Lido project. Benefiting from a direct channel to deposit stETH from Lido, Mellow also commits to supply 10% (out of 100B) of its MLW Tokens for collaborative efforts. Conversely, Lido benefits as it aims to reclaim stETH capital from liquidity restaking competitors amidst stagnating growth since the 2024 emergence of the Restaking era.
4. Market Trading Volumes
Symbiotic’s competitive advantage over EigenLayer or Karak stems from its tight integration with Lido. The concept is that Lido’s node operators can release their LRT through Mellow/Symbiotic, internalizing additional wstETH returns layers within the Lido DAO ecosystem.
Currently, depositing stETH into Mellow vaults yields the following four layers of returns:
– stETH Annual Yield
– Mellow Points
– Symbiotic Points
– Restaking Annual Yield when AVS goes live on Symbiotic
Open for just two weeks, Symbiotic has already attracted a total locked value of $316 million.
Conversely, Mellow has accumulated a total locked value (TVL) of $374 million. Both are still in their early stages, signaling positive momentum for Lido’s trajectory.
As of June 20th, Pendle has launched four Mellow pools:
Currently, these pools only accept Mellow Points until Symbiotic’s limits are raised. As compensation, Mellow is tripling the points for deposits (compared to 1.5x for direct deposits into Mellow). Given their short expiry dates, these pools also exhibit relatively low liquidity, resulting in considerable slippage if you attempt to purchase YT. The optimal strategy at present may be opting for PT fixed income, offering annual yields ranging from 17% to 19% (ranked by highest fixed income).
5. Overview of the Restaking Landscape
The competitive dynamics in the restaking market are becoming intricate. As of today, there are primarily three restaking platforms ranked by Total Locked Value (TVL): EigenLayer, Karak, and Symbiotic.
All three platforms offer services to secure AVS. Due to Ethereum’s dominance and deep liquidity, stETH remains EigenLayer’s prominent staking choice. Karak, previously covered, has expanded its restaking collateral collection beyond ETH LSTs to stablecoins and WBTC. Now, Symbiotic is challenging limits by allowing any ERC-20 collateral.
Meanwhile, LRT protocols like Ether.Fi, Swell, and Renzo have identified opportunities and begun competing with Lido by running their own point campaigns.
Lido holds a dominant position with stETH in DeFi, but is beginning to lose market share to LRT protocols. For Lido, the straightforward response could involve transforming stETH from LST to LRT assets. Instead, it chooses to retain stETH as LST and nurture its internal restaking ecosystem. Therefore, Lido supports Symbiotic and Mellow as part of the “Lido Alliance,” offering a permissionless, modular restaking product. The sales pitch concludes:
Dear projects, don’t wait for EigenLayer to whitelist your tokens; come to Symbiotic and launch your own LRT without permission.
Dear users, stop depositing your wstETH into LRT competitors; give it to Mellow for better risk-adjusted returns.
6. Conclusion
As competition intensifies in the restaking space, here are some points worth considering:
1) Demand for AVS and necessity of restaking platforms:
– AVS demand: Currently, only EigenLayer has active AVS. Approximately 22.6 million ETH, about 4.24x of the assumed collateral rate, is restaked across 13 AVS out of a total TVL of approximately 53.3 million ETH.
– Necessity of restaking platforms: The primary trend among restaking platforms is to integrate as many restaking assets as possible. While EigenLayer remains stringent, latecomers like Karak differentiate by using WBTC collateral, stablecoins, and Pendle PT assets. Symbiotic goes further, allowing any ERC-20 token, but hands over asset curation to third-party Mellow vault creators. While EigenLayer maintains a substantial lead in TVL, the debate on allowing non-ETH assets for chain security remains ongoing.
2) Prospects of LRT protocols:
– Integration with Symbiotic: Nothing stops them from integrating similarly with Symbiotic; Renzo has already done so. Designed to be as permissionless as possible, LRT protocols have no reason to remain loyal to EigenLayer; they aim to capture some market share in the Lido restaking ecosystem, especially as Mellow gains dominance in this secondary market.
3) Competitive relationships:
– Lido’s goal is to reassert stETH’s dominance, while Symbiotic and Mellow, both projects supported by this liquidity restaking giant, introduce strategies like introducing eETH, ezETH, swETH, etc., to Symbiotic. Balancing this will be interesting for Lido.
4) Impact on developers:
– Launching your own chain’s economic security is becoming easier: EigenLayer makes this process convenient, but permissionless vaults on the Mellow x Symbiotic stack make it even easier. Major players like Ethena have already announced plans to allow sUSDe and ENA in Symbiotic for restaking, securing their upcoming Ethena chains,
