Author: Donovan Choy, Crypto Analyst
Introduction
The battle for restaking dominance is heating up. Challenging EigenLayer’s monopoly is a new protocol, Symbiotic, supported by Lido. The latest entrant holds competitive advantages in protocol design and BD partnerships. Before delving into the latest competitive dynamics in the restaking space, it’s crucial to understand the key risks currently present in this domain.
Current Issues in Restaking
Currently, restaking operates as follows: Bob deposits ETH/stETH into liquidity restaking protocols like Ether.Fi, Renzo, or Swell, then delegates it to an EigenLayer node operator, who ensures partial returns from one or more AVS to Bob.
A compound risk exists in the current setup due to its blanket nature. EigenLayer node operators handle assets used to validate multiple AVSs, leaving Bob without a say in the potential risk management associated with which AVSs the operator chooses.
While Bob can attempt to select a “safer” node operator, with hundreds competing for his restaking collateral and incentivized to maximize validation of AVSs, the scenario remains complex.
A brief look at EigenLayer’s node operator pages reveals numerous overt advertisements.
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This competitive environment may lead to undesirable outcomes: each node operator validates AVSs they deem reliable. When AVS operations halt with penalties, Bob is impacted regardless of his chosen operator.
Understanding Mellow Finance
Mellow addresses this issue to some extent. Dubbed “modular LRT,” Mellow serves as middleware in the restaking tech stack, offering customizable liquidity restaking vaults. With Mellow, anyone can become their own Ether.Fi or Renzo, establishing their own LRT vaults. Third-party “managers” on Mellow have full control over which restaking assets to accept, allowing users to select assets based on their risk preferences for a fee.
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Consider this absurd example: Alice, a DOGE enthusiast seeking returns, finds a vault named DOGE4LYFE on Mellow. She deposits her DOGE into this vault, earns restaking returns, pays a small fee to operators, receives rstDOGE LRT, and can use it elsewhere as DeFi collateral. This scenario is currently impossible as DOGE is not whitelisted on EigenLayer. Even if EigenLayer’s Sreeram shifts focus to DOGE, the incentive misalignment issues among node operators mentioned earlier persist.
Similar services have appeared in the DeFi lending space like Morpho, Gearbox, or the now-defunct Fuse protocol developed by Rari in the previous cycle. For instance, Morpho allows the creation of lending vaults with custom risk parameters, enabling borrowing from vaults with unique risk configurations rather than the one-size-fits-all risk pools on Aave. Aave plans to upgrade its protocol with separate lending pools in the upcoming V4 update.
Mellow x Symbiotic x Lido Strategy
As Mellow is merely a middleware restaking protocol, its assets in vaults must be restaked somewhere. Interestingly, Mellow doesn’t align strategically with EigenLayer but opts for the upcoming restaking protocol Symbiotic, backed by Lido’s venture arm cyber•Fund and Paradigm (also a Lido supporter).
Different from EigenLayer or Karak, Symbiotic supports multi-asset deposits of any ERC-20 token, making it the most permissionless token to date. From ETH to meme coins, any asset can serve as restaking collateral to ensure AVS security. This could potentially open the door to the worst crypto nightmares: imagine a Symbiotic AVS secured by restaking DOGE collateral.
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While technically feasible, this overlooks the modular nature of Mellow’s product, allowing third-party vault managers endless combinatorial possibilities. Here, Mellow’s integration with Symbiotic becomes clearer, as assets can still be used on other restaking protocols (like EigenLayer or Karak).
To date, many managers have launched their LRT vaults on Mellow. Not surprisingly, given Lido’s close collaboration with Mellow (to be detailed later), most managers opt for stETH as collateral.
Two Ethena vaults accepting sUSDe and ENA are exceptions. Indeed, Mellow has achieved a feat—its first sUSDe vault is already fully subscribed.
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A final strategic step for Mellow involves participating in the recently announced “Lido Alliance,” an official association comprising Lido projects. Mellow benefits from direct stETH deposits via Lido channels, explaining its commitment to allocate 10% (100B) of its MLW token supply to fostering cooperative relationships. Conversely, Lido benefits as it attempts to recapture stETH capital from liquidity restaking competitors. Since the 2024 restaking climate began, Lido’s growth has stagnated due to LRT competitors.
Market Traction
Symbiotic’s competitive edge against EigenLayer or Karak stems from its close integration with Lido. The core idea is that Lido node operators can release their LRT via Mellow/Symbiotic, internalizing an additional wstETH yield layer within the Lido ecosystem.
Depositing stETH into Mellow vaults now yields four layers of returns beyond the respective vault’s LRT token: stETH APY, Mellow points, Symbiotic points, and restaking APY (post-AVS operation on Symbiotic).
Since launching deposits, Symbiotic has accrued a TVL of $316 million in less than two weeks. Symbiotic TVL assets are valued in USD and ETH across all chains:
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Meanwhile, Mellow’s TVL is $374 million. Both are early indicators suggesting Lido’s forthcoming impact in this arena. Mellow LRT TVL assets are valued in USD and ETH across all chains:
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As of June 20th, four Mellow pools have been launched on Pendle:
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Currently, only Mellow points qualify to enter these pools until Symbiotic raises its cap. As compensation, Mellow rewards triple points for deposits (1.5x if deposited directly on Mellow). Given the short maturity period, liquidity in these pools is relatively low, resulting in high slippage for YT purchases. The current optimal strategy may involve PT fixed income, offering high yields (17%-19% APY across all four vaults).
Restaking Ecosystem Overview
The restaking battlefield is growing increasingly complex. As of today, there are three major restaking platforms ranked by TVL: EigenLayer, Karak, and Symbiotic. Restaking protocol TVL:
Assets locked across EigenLayer, Karak, and Symbiotic (across all chains) are as follows:
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These three restaking platforms offer security services to AVSs. Given ETH’s dominance and deep liquidity, stETH stands out as EigenLayer’s collateral choice. Karak has expanded its restaking collateral from ETHLST to stablecoins and WBTC. Now, Symbiotic challenges limits by supporting any ERC-20 collateral.
Meanwhile, LRT protocols like Ether.Fi, Swell, and Renzo see an opportunity and begin competing with Lido through their respective point activities. Liquidity restaking token TVL:
Assets locked in liquidity restaking protocols year-to-date (across all chains) are as follows:
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Lido has historically enjoyed stETH dominance in DeFi, but now it starts losing market share to LRT protocols. For Lido, a straightforward response may strategically reposition stETH from LST to LRT assets. However, Lido maintains stETH as LST while nurturing its own restaking ecosystem. Hence, Lido strongly supports Symbiotic and Mellow as part of the “Lido Alliance,” offering a permissionless modular restaking product. Sales strategy summary:
Dear tokenized project, don’t wait for EigenLayer to whitelist your token. Come to Symbiotic and release your own LRT in a permissionless manner.
Dear users, don’t restake your wstETH with LRT competitors anymore. Entrust it to Mellow for better risk-adjusted returns.
Conclusion
As competition intensifies in the restaking field, several points deserve consideration:
What is the true demand for AVSs in restaking, and do we really need this many restaking players?
As of today, real-time AVSs are only available on EigenLayer, with a TVL of approximately 5.33 million ETH and about 22.6 million ETH restaked across 13 AVSs at approximately 4.24 collateral ratio.
The main trend in restaking platforms is integrating as many assets as possible to support restaking. Later entrants like Karak differentiate themselves with WBTC collateral, stablecoins, and Pendle PT assets.
Symbiotic goes further, allowing any ERC-20 collateral, but leaves asset management to third-party Mellow vault creators. Despite the strictest limitations, EigenLayer still maintains a significant lead in TVL. Furthermore, there’s no definitive consensus on whether allowing non-ETH assets for chain security is a wise move.
What does this mean for LRT protocols?
It’s certain nothing prevents them from pursuing similar integrations with Symbiotic, and Renzo has already done so. Not only does Symbiotic support maximum permissionless features in design, LRT protocols have no reason to remain loyal exclusively to EigenLayer. Before Mellow monopolizes secondary market dominance, LRT protocols aim to gain market share in Lido’s restaking ecosystem.
However, is fierce competition inevitable?
As mentioned, Lido’s goal is to reaffirm its stETH dominance, conflicting fundamentally with considerations like Symbiotic eETH, ezETH, swETH. Observing how Lido balances pros and cons will be fascinating.
From a builder’s perspective, guiding economic security for one’s chain is becoming easier. EigenLayer streamlines this process, but permissionless vaults in the Mellow x Symbiotic ecosystem make it even
