What is the Renzo Protocol? All You Need to Know About ezETH

What is the Renzo Protocol?

The Renzo Protocol is the main interface to interact with the EigenLayer ecosystem. The protocol is a Liquid Restaking Token (LRT) manager for the EigenLayer that acts as a staking strategy manager. It offers a higher yield than traditional ETH staking and abstracts the complexities surrounding Ethereum staking.

The Protocol uses Actively Validated Services (AVSs) to safeguard applications built on EigenLayer using Ethereum’s layer1 security protocols. And it bypasses the need to lock up ETH tokens for an extended period by issuing ezETH.

The ezETH token is a liquid representation of staked ETH, allowing users to conduct transactions while retaining their staked ETH. As a strategy manager, the Renzo Protocol automatically selects a combination of AVSs aiming to maximize yield generation while minimizing slashing risks.

The Renzo Protocol consists of actively validated services (AVS), ETH stakers, node operators, and the underlying EigenLayer Protocol.

History of the Renzo Protocol

Source: Renzo Protocol Website

The Renzo Protocol was founded in 2023 with Kratik Lodha and Lucas Kozinski as founding contributors. It was created as a bridge into the EigenLayer protocol to engage in secure ETH re-staking. The Renzo Protocol mainnet launched on the 30th of October, 2023, which accepts depositing and staking native ETH tokens.

By the 14th of January 2024, the Renzo Protocol raised $3.2 million in seed funding, which brought its valuation up to $25 million. This seed funding round was led by Maven11 and participated in by OKX Ventures, Robot Ventures, Protagonist, Bitscale Capital, Re7 Capital, Mantle Network, and Karatage, among others.

On the 21st of February 2024, Binance Labs also invested in the Renzo Protocol with an undisclosed amount.

The protocol aims to develop its mainnet beyond ETH re-staking to accept the deposit of wrapped ETH (wBETH) and other ETH liquidity staking tokens (LSTs).

Core Components

EigenLayer Protocol

Source: EigenLayer Website

The Eigen Protocol consists of Ethereum smart contracts that allow node operators, stakers, and AVSs to conduct trustless collaborations and transactions. These smart contracts allow users to re-stake their assets by delegating them to node operators and interacting with on-chain service modules.

The EigenLayer is a protocol built on Ethereum that introduced re-staking, which allows users to lock up tokens and still reuse these staked tokens on the consensus layer. These reused tokens can be re-staked in more flexible pools to accumulate yield benefits.

Unlike traditional staking platforms requiring a separate Ethereum network, thereby causing a fragmented landscape, EigenLayer utilizes “pooled security.” This feature leverages the ETH tokens staked through the protocol to secure multiple services, reducing the capital investment for individual stakers and enhancing security.

The EigenLayer Protocol allows the Renzo Protocol to execute permissionless transactions and foster free-market governance within the Ethereum ecosystem.

Ethereum Stakers

Ethereum stakers are holders of the ETH token that choose to stake their assets for rewards while securing the network.

These users utilize their assets to interact with smart contracts on the Ethereum network to support multiple networks. While they benefit from staking assets, they are also susceptible to the risk of slashing when staked with the wrong validator.

Slashing is the penalty given to validators who carry out malicious activities or do not meet the criteria set by the Ethereum network. Users who stake with a malicious validator risk losing their staked funds.

Actively Validated Services (AVS)

AVS are decentralized service modules that inherit Ethereum’s security via EigenLayer. These service modules help support on-chain activities such as providing security to sidechains, data layers, networks, ordering transactions, block building, and middleware services.

AVSs also open new possibilities in areas like Proposer-Builder Separation (PBS) and Maximal Extractable Value (MEV).

Node Operators

Node operators in the Renzo Protocol provide computational power for running services on the protocol. Node operators validate transactions and secure Renzo’s staking functions and the EigenLayer network.

Node operators are designed to implement recommendations provided by the AVS, running services like decentralized applications (dApps), oracles, and bridges.

Features of the Renzo Protocol: Re-staking, Cross-Chain Re-staking and Pendle

Re-staking

Source: Renzo Protocol Website

The main feature of the Renzo Protocol is re-staking ETH tokens using the Eigen Layer. This is done by holding deposited ETH assets on the DepositQueue contract until the amount hits the required 32 ETH for staking on Ethereum.

Once the minimum is achieved, the protocol moves the accumulated tokens to the Beacon Chain Deposit Contract, staked using an Ethereum Beacon chain validator node. The protocol also sets the withdrawal credentials using the EigenPod on EigenLayer.

Aside from the rewards from traditional staking activities, the integration with EigenLayer allows the protocol to distribute more returns to its users. The user-friendly user interface requires users to connect their wallets, select their assets, and confirm the transaction.

The protocol then distributes ezEth to the user, an instantly liquid asset for participating in other DeFi activities.

Cross-Chain Re-staking

The Renzo Protocol introduced cross-chain re-staking on its platform in collaboration with the Connext Network. This feature allows users to re-stake their assets on popular layer two projects and networks using wrapped ETH tokens.

The cross-chain re-staking feature eliminates the complexities of traditional staking across different projects. This provides a broader range of use cases for the Ethereum landscape, potentially increasing rewards.

The collaboration between Renzo Protocol, Connext, and Chainlink’s Cross-chain Interoperability Protocol (CCIP) ensures a seamless user experience. It also manages bridging assets, which can broaden the future support for other LSTs.

The ability to re-stake directly on layer two networks also offers the value of reduced cost. This feature aims to make ETH staking more attractive by bypassing the cost and utility limitations of ETH staking.

What is the ezETH Token?

The ezETH token is the native token of the Renzo Protocol that represents a user’s re-stake activities. Users that deposit ETH or other approved tokens receive ezETH tokens, which hold similar value and can be used for transactions.

The ezETH token is a reward-bearing token, so its price increases relative to the underlying asset and its earned reward. These earned rewards can be in ETH, USDC, and AVS reward tokens. Users can also withdraw their staked tokens and rewards.

Withdrawing assets involves unstaking the deposited assets, and it is subject to the re-staking strategy and EigenLayer’s unstaking protocol. The withdrawal process can take at least seven days, depending on the above factors.

Directly withdrawing ezETH tokens is not enabled. Instead, users can sell their ezETH to balancers who would convert the ezETH token to ETH. That is why the token has zero circulating supply and a total supply of 282,469 ezETH.

Is the ezETH Token a Good Investment?

The ezETH token provides some potential benefits to its holders. The token leverages the EigenLayer to offer higher yields than traditional staking protocols.

It also allows for flexible asset management. With the ezETH token, users can reap the benefits of staking on Ethereum while participating in DeFi transactions.

The Renzo Protocol’s strategy manager automatically selects validators based on specific criteria to minimize slashing risks associated with validator misconduct.

Finally, the protocol allows for cross-chain staking features, allowing holders to re-stake on popular layer two projects using wETH. This expands the investment opportunities open to Renzo users.

Risk Analysis

Advantages

A major advantage of the Renzo Protocol is the enhanced yield combined with the ezETH token, allowing re-staking assets on multiple projects.

Another advantage is the cross-chain capacity, which simplifies the staking experience. And a user-friendly Interface with reduced cost.

The project also has the possibility of future multi-token support for WBETH and Lasts from other projects. Using the EigenLayer, Renzo Protocol can provide a secure, trustless staking experience.

Disadvantages

A disadvantage to the Renzo Protocol is the inability to transfer ezETH tokens from one user to another, reducing the circulating tokens to zero. This can reduce the ability of users to pool ezETH assets from a compromised wallet to a safer wallet.

The cool-down period for unstaking assets is long. With the lack of liquidity, unstaking assets would limit the users’ access to funds during the period of unstaking. This can cost users valuable opportunities to gain an advantage.

Challenges

A major challenge for the protocol is smart contract vulnerability. The Renzo Protocol is a new project that relies on a series of smart contracts (EigenLayer) to perform its functions. Any vulnerability experienced by those smart contracts could halt the project’s operations.

Another challenge is the volatility of the crypto market, the volatile ETH asset price, and the uncertainty of the crypto space. These could impact users’ desire to interact with Renzo or stake their assets in the re-staking protocol.

Competitive analysis

Similar to the Renzo Protocol, the Puffer Finance platform is a native re-staking platform that allows users to become validators without staking 32 ETH.

While both players are significant in the ETH re-staking space, they focus on different aspects. Both protocols are significant players in the liquid re-staking space, with. Puffer Finance focuses on growth using validator rewards while Renzo Protocol is focused on diversifying ETH staking.

Puffer Finance uses validator tickets to maximize profit, while Renzo Protocol uses cross-chain functionalities to minimize cost while working to support major LSTs and layer two solutions.

How Can You Own ezETH?

Users can follow a simple process to own ezETH tokens and become a part of the Renzo ecosystem.

Setup a Wallet

To own ezETH tokens, users must stake ETH on the Renzo platform or participate in a balancer. This can be done using the Gate.io web3 wallet without needing KYC requirements.

Utilize the ezETH Tokens

Once users have acquired ezETH tokens, they can explore the Renzo ecosystem by re-staking and cross-chain staking to earn passive rewards.

Take action on ezETH

Users can trade the ezETH token here.