CryptoSphere News Report:
Author: DONOVAN CHOY; Translation: Plain Blockchain
The re-staking war is heating up. Challenging EigenLayer’s monopoly is another new protocol, Symbiotic, supported by Lido. This new entrant brings competitive advantages in protocol design and business development cooperation. Before delving into the evolving competitive landscape of re-staking, understanding the key risks in the current system is essential.
1. Current Issues in Re-staking
Here’s how re-staking currently operates: Bob deposits ETH/stETH into liquidity re-staking protocols like Ether.Fi, Renzo, or Swell, which then delegate it to EigenLayer’s node operators. These node operators use these assets to secure one or multiple AVS, generating returns for Bob.
A compounded risk exists within the current system due to its one-size-fits-all nature. EigenLayer’s node operators manage vast sums of assets used to validate multiple AVS. Consequently, Bob has no say in the risk management of the AVS selected by the node operators.
While Bob can attempt to choose a “safer” node operator, these operators are engaged in fierce competition with hundreds of others, all vying for your re-staked 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 prioritizes what they perceive as fail-safe AVS. When such AVS suffer breaches and slashing events, Bob is impacted regardless of which operator he chooses.
2. Introduction of Mellow Finance
Mellow partially addresses this issue. Dubbed as “modular LRT,” Mellow acts as an intermediary layer in the re-staking stack, offering customizable liquidity re-staking vaults. With Mellow, anyone can become their own Ether.Fi or Renzo, launching their own LRT vaults. Third-party “curators” on Mellow have complete control over which re-staking assets they accept, allowing users to choose based on their risk preferences and pay fees accordingly.
Consider this scenario: Alice, a fervent DOGE enthusiast, seeks returns on her DOGE assets. She discovers a vault named DOGE4LYFE on Mellow. She deposits her DOGE into the DOGE4LYFE vault, earns re-staking rewards, pays a minor fee to operators, and receives rstDOGE tokens usable as collateral in DeFi. This scenario is currently impossible due to EigenLayer’s DOGE whitelist restrictions. Even if Sreeram eventually accepts DOGE, the incentive imbalance faced by node operators persists.
This may sound familiar as similar services have been offered in DeFi lending protocols like Morpho and Gearbox or the now-defunct Fuse protocol in previous DeFi cycles. For example, Morpho enables the creation of lending vaults with customized risk parameters, allowing users to borrow from vaults with unique risk characteristics instead of a single risk pool like Aave. In its upcoming V4 upgrade, Aave also plans to upgrade its protocol by isolating lending pools.
Since Mellow is merely an intermediary re-staking protocol, assets in its vaults must be re-staked somewhere. Interestingly, Mellow chose to strategically partner with the upcoming re-staking protocol, Symbiotic, rather than EigenLayer. Symbiotic is backed by Lido’s venture arm cyber•Fund and Paradigm (also supporters of Lido).
Unlike EigenLayer or Karak, Symbiotic allows multi-asset deposits of any ERC-20 token, making it the most permissionless protocol to date. Any asset from ETH to the most obscure memecoin can serve as re-staking collateral to secure AVS. This could potentially open the floodgates to speculative crypto activities: imagine a Mellow vault composed of re-staking DOGE collateral to secure Symbiotic’s AVS.
3. Mellow x Symbiotic x Lido Strategy
Despite the technical feasibility of these integrations, the focus shifts to Mellow’s modular product nature, allowing for unlimited combinations of re-staking yields curated by third-party vault creators. Here, the rationale behind Mellow’s integration with Symbiotic becomes clear as assets remain restricted on other re-staking protocols (like EigenLayer or Karak).
To date, numerous vault creators have joined Mellow, launching their own LRT vaults. Notably, most utilize stETH as collateral due to deep collaboration between Lido and Mellow (details to follow).
Exceptions include two Ethena vaults accepting sUSDe and ENA. Indeed, Mellow has successfully attracted Ethena, with its first sUSDe vault already fully subscribed.
The final part of Mellow’s strategy involves its participation in the recently announced “Lido Alliance,” an official guild aligned with the Lido project. Mellow benefits from direct channels to stETH deposits from Lido, explaining its commitment to allocate 10% of its MLW token supply to the partnership. Conversely, Lido benefits as it seeks to reclaim stETH capital from liquidity re-staking competitors amid stagnant growth since the 2024 Year of Re-staking began.
4. Market Trading Volume
Symbiotic’s competitive edge over EigenLayer or Karak stems from its close integration with Lido. The concept is that Lido’s node operators can issue their own LRTs through Mellow/Symbiotic, internalizing additional wstETH yield layers within the Lido DAO, thereby creating value returns.
Currently, depositing stETH into Mellow vaults yields:
– stETH annual returns
– Mellow points
– Symbiotic points
– Re-staking annual returns when AVS goes live on Symbiotic
Just two weeks after its launch, Symbiotic has already attracted $316 million in total locked value (TVL).
Conversely, Mellow has accumulated a TVL of $374 million. Both are in early stages but signal positive momentum for Lido’s path to success.
As of June 20th, Pendle has launched four Mellow pools:
Currently, these pools only accept Mellow points until Symbiotic’s caps are raised. To compensate, Mellow triples reward points for deposits compared to direct Mellow deposits (1.5x). Due to their short expiry, these pools have relatively low liquidity, resulting in significant slippage when attempting to purchase YT. The optimal strategy may currently be opting for PT fixed income, offering annual returns ranging from 17% to 19% (highest fixed income first).
5. Overview of Re-staking Landscape
The re-staking market competition is complex; let’s summarize quickly. As of today, there are three major re-staking platforms ranked by TVL: EigenLayer, Karak, and Symbiotic.
All three platforms offer security services to AVS sales. Due to Ethereum’s dominance and deep liquidity, stETH remains EigenLayer’s prominent staking choice. Karak, previously covered by us, has expanded its re-staking collateral collection beyond ETH LSTs to stablecoins and WBTC collateral. Now, Symbiotic challenges limits by allowing any ERC-20 collateral.
Meanwhile, LRT protocols like Ether.Fi, Swell, and Renzo seize opportunities and begin competing with Lido for re-staking collateral through their respective point activities.
Lido holds a dominant position in stETH within DeFi but is starting to lose market share to LRT protocols. For Lido, the straightforward response might involve transforming stETH from LST to LRT assets, yet it opts to maintain stETH as LST and nurture its internal re-staking ecosystem. Thus, Lido supports Symbiotic and Mellow as part of the “Lido Alliance,” offering a permissionless, modular re-staking product. Summing up their sales pitch:
Dear project teams, don’t wait for EigenLayer to whitelist your tokens; come to Symbiotic and launch your own LRT without permission.
Dear users, don’t deposit your wstETH into LRT competitors; entrust it to Mellow for better risk-adjusted returns.
6. Conclusion
With intensifying competition in the re-staking arena, here are some points worth considering:
1) AVS demand and the necessity of re-staking platforms:
– AVS Demand: Currently, only EigenLayer has active AVS. Approximately 22.6 million ETH is re-staked across 13 AVS out of a total locked value (TVL) of around 53.3 million ETH, assuming a collateralization rate of approximately 4.24 times.
– Necessity of re-staking platforms: The primary trend for re-staking platforms is to integrate as many re-staking assets as possible. Late-stage competitors to EigenLayer like Karak differentiate by using WBTC collateral, stablecoins, and Pendle PT assets. Symbiotic goes further by allowing any ERC-20 token, though the discussion on allowing non-ETH assets for chain security remains open.
2) Prospects of LRT protocols:
– Integration with Symbiotic: Nothing stops them from integrating 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 within the Lido re-staking ecosystem, especially before Mellow monopolizes this secondary market.
– Competitive dynamics: Lido aims to reaffirm stETH’s dominance while Symbiotic and Mellow, both supported projects within this liquidity re-staking giant, introduce strategies fundamentally conflicting with the introduction of eETH, ezETH, swETH, etc., to Symbiotic.
3) Impact on Developers:
– Launching their chain’s economic security becomes easier: EigenLayer makes this process convenient, but permissionless vaults on the Mellow x Symbiotic stack make it even easier. Major players like Ethena have announced plans to allow sUSDe and ENA for re-staking on Symbiotic to secure their upcoming Ethena chain, rather than waiting for EigenLayer or
