The Liquidity Restaking Token (LRT) Narrative Reignited: Finding High-Potential Project Opportunities Among Endless Liquidity Matryoshka Dolls

The crypto markets experienced a flash crash this week on the eve of results of the Bitcoin spot ETF.

After the panic, Ethereum ecological tokens such as LDO and ARB rebounded quickly, and some Ethereum L2 with smaller market capitalization such as Metis even touched higher points, which shows from another perspective that market funds are optimistic about the Ethereum ecosystem.

However, L2s have collectively promoted, and most of the projects in liquidity staking only have Beta returns. What other narratives can be laid out around the Ethereum ecosystem?

Don’t forget another ambitious but yet to be fully realized catalyst— Re-staking and EigenLayer.

Re-Staking derived from liquidity staking has gradually evolved into a matryoshka version of Liquidity Staking Tokens (LST) - Liquidity Re-Staking Tokens (LRT) in capital’s everlasting pursuit of efficiency and returns.

Outside of CEX, some tokens related to the LRT concept have experienced good gains recently.

Sounds familiar, but don’t quite understand the logic?

In this issue, we will help you quickly understand the logic of re-staking and LRT, and dig deeper into projects with lower market capitalization or those that have not yet released tokens.

Review of re-staking and liquidity matryoshka dolls

Re-staking is not a new concept.

As early as June last year, EigenLayer introduced the concept of “re-staking” on Ethereum. It allows users to re-stake already staked Ethereum or Liquidity Staked Tokens (LST) to provide additional security for various decentralized services on Ethereum and earn additional rewards for themselves.

I will not repeat the technical principles of EigenLayer, and assume that all readers have a certain understanding of it.

On the contrary, if you are not concerned about the technical details of EigenLayer, it is actually easier to understand the logic of liquidity staking and re-staking:

In simple terms:

• For Ethereum, staking ensures security, and additional staking provides even more security;

• For investors, staking seeks returns, and additional staking seeks even more returns.

So, from an investment perspective, how is this method of seeking returns currently implemented? The following diagram provides a minimalist understanding:

1. I have ETH and stake ETH to a LSD service provider, such as Lido;

2. I get LST (liquidity staking token), such as stETH;

3. I re-stake stETH into EigenLayer;

4. I gain from steps 1 and 3.

Obviously, before the emergence of EigenLayer, the LST in my hand could only obtain one kind of income; after having EigenLayer, I gained an extra layer of income, and theoretically there is no loss.

But in the mature re-staking process above, there is a key issue: Liquidity is trapped.

Your LST is re-pledged into EigenLayer, and you lose the opportunity to invest your LST elsewhere to generate income.

As a re-staking layer, EigenLayer will return you income due to your staked investment, but it will not give you the same liquidity as when you hold the currency.

In the capital-efficient environment of the crypto market, liquidity never sleeps. The speculative orientation does not actually accept that the liquidity of the token is completely locked in one place and cannot be expanded.

Therefore, the current logic of finding returns through “staking-re-staking” is not perfect.

To increase the liquidity and opportunities for tokens, the concept of LRT (Liquidity Re-Staking Tokens) was introduced. In fact, the principle behind LRT is quite easy to understand, and can be explained using a simple analogy:

Collateral Certificates.

If I have ETH, I can swap out LST (stETH) through liquidity staking. At this time, this stETH is actually a mortgage certificate, used to prove “I did stake ETH”, but the original asset in my hand is only ETH itself.

Similarly, if I have LST, I can exchange it for a new collateral certificate through re-staking, to prove that “I did indeed re-stake stETH”, but the original asset I have on hand is still only ETH itself.

Essentially, this new collateral certificate is called LRT, which stands for Liquidity Re-staking Token. You can use this new certificate to perform various financial operations, such as collateralizing and borrowing, to address the issue of liquidity being locked in re-staking.

If you still can’t understand the principle, imagine a matryoshka doll with three layers of dolls.

You can use ETH to buy LST, and you can use LST to buy LRT. When you have three layers of matryoshka dolls in your hand, you can use these three dolls to do different things (staking, re-staking, other methods of earning interest). For each layer of matryoshka dolls, you have one more layer to use for liquidity (to earn).

So, when Ethereum receives renewed attention, a new narrative for LRT may evolve in addressing the capital efficiency issue in EigenLayer re-staking.

What related projects are worth paying attention to?

Currently, projects related to LRT that aim to solve capital efficiency issues have started to gain attention, and some of them have achieved very impressive price performance.

However, from an investment research perspective, we do not prefer to introduce projects that have already been fully priced-in, such as SSV. Therefore, the projects we are more inclined to explore next fall into the following two categories:

• There are low market capitalization and with token released \

• No tokens

Low market capitalization projects with tokens

SSV Network ($SSV): Seamless re-employment of liquidity staking projects

Previously, the liquidity staking project could engage in staking business, and if it can engage in re-staking business, it can be considered as a seamless transition into a specialized field.

This logic is evident in SSV.

On January 4, SSV announced on Twitter that it was entering the re-staking business, allowing the responsibilities of EigenLayer’s validators to be distributed to SSV, leveraging the distributed and non-custodial features of SSV to enhance the performance and security of its validators. This process not only increases the elasticity and distribution of validator operations, but also improves fault tolerance and performance, ultimately bringing more revenue and higher security to users.

At the same time, users can also obtain additional rewards on top of the staked ETH.

It is worth mentioning that SSV’s re-staking nodes are very distributed and can currently be combined with the 4 nodes of ANKR/Forbole/Dragon Stake/Shard Labs to provide re-staking services.

However, the SSV token has not shown significant growth in the past week. Considering its well-known presence in the liquidity staking space and its specialization in re-staking services, a market value of around 300 million is not particularly high. We can still expect performance in the narrative of re-staking going forward.

Restake Finance ($RSTK): The first modular liquidity re-staking protocol on EigenLayer

As you can see from the name of the project, Restake Finance focuses on EigenLayer re-staking related businesses.

On the basis of understanding the above LRT operating logic, the business of Restake Finance becomes very easy to understand:

• Users deposit the LST generated by liquidity staking into Restake Finance;

• The project helps users deposit LST into EigenLayer and allows users to generate restaked ETH (rstETH) as a re-staking certificate;

• Users take rstETH to earn income in various DeFis, and will also receive points awarded by EigenLayer (considering that EigenLayer has not yet issued coins)

Image source: Twitter user @jinglingcookies

At the same time, the project’s native token is called RSTK and is built on the Ethereum blockchain. In summary, it serves the purposes of governance, staking, and generating income.

Governance:

• $RSTK holders may participate in the selection process of node operators and AVSs, which is equivalent to participating in the security of Ethereum-related components;

Increase revenue:

• $RSTK can be staked to increase the yield generated by EigenLayer. 5% of the accumulated rewards from staking EigenLayer on the Restake Finance platform will be distributed to the stakers, while also earning a share of the protocol’s income.
• Staking $RSTK will result in receiving $sRSTK tokens, which are used to track the user’s governance and revenue sharing rights. These tokens cannot be traded or transferred. If users wish to redeem their $RSTK, there is a 45-day unlocking period.
• As a successful proxy for EigenLayer: $RSTK is designed to be a successful proxy for EigenLayer. As more AVS join, EigenLayer achieves wider adoption, higher yields, and more protocol income, which will increase the value of $RSTK.

Image source: Twitter user @jinglingcookies

Overall, the design of the token’s functionality does not have much novelty, but rather follows the classic approach of generating additional earnings through staking.

However, in terms of token performance, RSTK has recently experienced a highlight moment.

Since the opening of trading on December 20, RSTK has increased nearly 20 times as of press time. However, its market value is only US$38 million. According to the author’s observation, smart money has been purchasing varying amounts of RSTK every day in the past week.

So is RSTK underrated?

Considering that SSV Network has also started to engage in re-staking related businesses, and its current market value is 330 million US dollars. If the re-staking business becomes a mainstream choice for the mature liquidity staking project “Seamless Reemployment,” it probably means that RSTK still has about 10 times the market value space from mature projects. However, if compared directly with LDO, the space is even larger. But considering LDO’s leading position and the significant advantage of focusing on LSD’s main business, such a comparison is not practical.

Therefore, the author believes that in the long run, there are not many new projects with tokens that can be staked in the current LRT narrative. The seamless re-employment of the LSD project can be regarded as Beta income at most, and projects such as RSTK have been re-staked from the beginning. On the contrary, it deserves more attention.

However, in the short term, due to the uncertainty of Bitcoin ETFs, the possibility of extreme market changes increases. From an investment research perspective, it would be a better choice to wait until the stone falls to find a stable entry point.

Stader Labs X KelpDAO ($SD): Support new organizations for re-staking

Stader Labs is not a newcomer. It has already made its mark in the narrative of liquidity staking brought by the Shanghai upgrade last year. However, Stader’s distinctive feature is its support for multi-chain staking. From its official website, it can be seen that it supports not only Ethereum, but also various L1 and L2 staking.

And this all-rounder can start the LRT re-staking business very smoothly.

Stader also supports an organization called Kelp DAO, which focuses on liquidity re-staking. The business model is also similar to Restake Finance:

Deposit stETH and other LST into the Kelp protocol, which can be exchanged for rsETH tokens, and then use rsETH to do more operations to obtain profits. At the same time, due to the linkage with EigenLayer, it means that users can not only obtain EigenLayer points by staking again, but also can withdraw liquidity and use LRT to earn interest, while enjoying the interest-earning income of LST.

In terms of tokens, since Kelp DAO currently has no tokens, Stader Labs’ token SD, which is associated with a public name, can become a target of attention.

SD has experienced an increase of about 20% in the past week, and its market value is close to that of RSTK, both in the range of about 35 million.

However, unlike RSTK, SD is an old currency that is newly speculated, and it will usher in new performance after obtaining the re-staking narrative; at the same time, considering that Kelp DAO is doing direct business again, but has not issued coins, we may also expect SD tokens to compete with RSTK in the future. The linkage effects of Kelp’s currency issuance, such as airdrops, etc.

Prisma ($PRISMA): Not entirely about LRT, an alternative to LSDFi

The two projects mentioned above both focus on liberating liquidity around EigenLayer. However, there are actually other ways to unlock token liquidity.

In the market, there is still another approach that is not directly tied to EigenLayer, but generates income by releasing liquidity through its own resources. A representative project for this is Prisma.

Strictly speaking, this project is not LRT, but more like LSDFi.

Prisma entered the public eye six months ago, and at that time, the points that attracted attention were its luxurious investment and endorsement lineup:

The project received joint endorsements from founders of multiple projects such as Curve Finance, Convex Finance, Swell Network, and CoingeckoFinance, as well as participation from well-known project teams including Frax Finance, Conic Finance, Tetranode, OK Venture, Llama Airforce, GBV, Agnostic Fund, Ankr Founders, MCEG, and Eric Chen.

Although the financing amount was not disclosed, it can be said that they basically covered the top DeFi projects.

The way Prisma releases LST liquidity is:

• Deposit LST into Prisma protocol

• Mint’s stablecoin named mkUSD

• Through mkUSD, users can generate income by participating in activities such as staking, mining, and borrowing in different DeFi protocols, thereby unlocking the liquidity of LST.

In terms of tokens, PRISMA has experienced ups and downs in the past month, with more than 1x amplitude between highs and lows. The price is very unstable, but it has also experienced good gains in the past week.

In contrast, the token has a market value of only about 17 million, and is extremely susceptible to rapid rise or fall due to news.

Considering the luxurious endorsement lineup, why is the current market value of the project so low? LSDFi’s narrative has some appeal, but this does not necessarily mean that the project is undervalued. Instead, we need to consider the following points:

• The circulating market value of PRISMA does not take into account the locked tokens, and there are approximately 22 million PRISMA in the project that have not been calculated;

• Locked tokens can be withdrawn and sold to the market at any time, which may also have an impact on prices;

• According to Twitter user @lurkaroundfind, Justin Sun owns 1/3 to 1/2 of the total PRISMA TVL, which is also an unstable factor.

butUnstable + small market capitalization means certain manipulative opportunities.

Overall, PRISMA has a small market value but is endorsed by luxury lineups and hits the LSDFi narrative. There is no significant migration cost in transferring it to LRT in the future, and it is not ruled out that there may be possibilities of using the narrative to create trouble.

It is suggested to allocate a small position to PRISMA for the purpose of gaining profits from the short-term Pump & Dump waves.

Picca Network ($PICA): Liquidity Redemption Heading to Solana

If you feel that the liquidity re-staking narrative surrounding Ethereum is overcrowded, a viable plan B is to find targets for the same narrative in the popular Solana ecosystem.

Targets that meet this search criteria currently include Picasso Network.

The project itself is designed to support multiple L1s, primarily facilitating inter-ecosystem blockchain communication (IBC) between ecosystems such as Polkadot, Kusama, and Cosmos, and by extension to other networks such as Ethereum and Solana.

However, the project is currently targeting the gap in the liquidity re-staking track in the Solana ecosystem, trying to enable the Solana ecosystem to achieve re-staking through IBC capabilities.

In terms of specific implementation, Picasso is launching a Restaking Vault plan. Excluding the technical details, you can roughly understand Picasso as an EigenLayer on Solana. The way it is implemented is roughly as follows:

• Provides a validator for Solana through Picasso’s Solana<>IBC connection;

• Users can re-stake LST tokens such as mSOL/jSOL/Orca LP/bSOL on Solana liquidity staking projects (such as Marinade/Jito/Orca/Blaze) to the validator;

• Earn re-staking benefits while protecting network security.

One potential point of opportunity is that the liquidity staking rate of Solana is lower than ETH, with data showing that around 8% of SOL is still not staked. This is beneficial for both liquidity staking and liquidity re-staking.

Considering the previous general rise in liquidity staking projects on Solana, if the narrative of re-staking on Ethereum emerges, market funds may also overflow once again into the same narrative on Solana.

In terms of tokens, Picasso has experienced a nearly doubled increase in the past week, with its market cap reaching around US$100 million. Compared with the aforementioned liquidity re-staking projects on Ethereum, the market value is relatively high. However, Considering its IBC characteristics, its main business is not just liquidity re-staking, so its market value cannot be completely compared with similar projects on Ethereum.

Considering that the Solana ecosystem has not shown impressive performance in the past week compared to Ethereum-related projects, Picasso can be considered as an alternative in the investment portfolio, and it can be observed how the funds flow into Solana before taking any further action.

Potential projects without tokens

In addition to the above-mentioned projects, there are also some projects on the LRT track that currently do not have tokens, but they are also making frequent moves on re-staking.

DDue to space constraints, here is a simple list and description. Interested readers can refer to the project’s social media and official website for more information.

Puffer Finance: Reducing Validator Thresholds through Native Re-staking

EigenLayer has proposed a requirement of 32 ETH threshold for general Ethereum re-staking to nodes in order to run AVS.

Puffer’s re-stakiing function lowers this threshold below 2 ETH in an attempt to attract small nodes.

Swell: Stake liquidity and re-stake to earn airdrops of points

Swell previously did liquidity staking on Ethereum, and recently announced a re-staking function that allows ETH to be deposited and exchanged for rswETH.

Considering that Swell has not yet been launched, previously LSD could be exchanged for points. Now, participating in re-staking also provides an opportunity to increase points.

Ether.fi: Providing a seamless re-staking experience

The project is functionally similar to Swell and Puffer, and the current total staked TVL has reached about 120 million US dollars.

Besides the above, there are still some projects that have not been listed due to space limitations. However, if LRT becomes popular enough, I believe that these projects that have not yet launched their tokens will actively market themselves and attract users for re-staking. It is only a matter of time before they are discovered by the community.

Summarize

Finally, during the process of researching the project, I was also thinking, is the re-stake of liquidity considered an improvement?

From an Ethereum perspective, it does further ensure the security of different projects through EigenLayer.

However, from a practical standpoint, it is more like a speculative leverage for creating liquidity. The concept of leverage refers to the fact that there is only one underlying asset, but by mapping tokens and locking in rights, multiple derivative (collateral) certificates can be created through continuous leveraging of the original ETH.

At best, these derivatives certificates have greatly revitalized liquidity during the tailwind situation and are more conducive to market speculation.

But at worst, the various protocols that issue derivatives are connected to each other because of liquidity. Holding A can lend B, and lending B can revitalize C. Once there is a problem with the A protocol itself (hacker attack or self-inflicted evil) and the scale is large, the risks will be chained.

The matryoshka doll goes up the lever when the wind is blowing, but when the wind is blowing it all scatters.

Ethereum has created an open space, and EigenLayer is like constructing a runway within that space. For liquidity seekers who are eager for profits and willing to take risks, providing them with a reason to utilize the runway is the ideal scenario.

Liquidity never sleeps, and pleasing liquidity is the eternal narrative theme in the crypto market.

Disclaimer：

1. This article is reprinted from [TechFlow Research]. All copyrights belong to the original author [David]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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