Liquidity Never Sleeps: Exploring Potential Opportunities for Re-Staking Tokens (LRT) Narratives

In the eve of the impending results of the Bitcoin Spot ETF, the crypto market experienced a flash crash this week. After the panic, Ethereum ecosystem tokens like LDO and ARB quickly rebounded, with some smaller Ethereum L2 solutions like Metis reaching new highs. This, from another perspective, indicates the current market’s positive sentiment towards the Ethereum ecosystem.

However, with L2 projects collectively surging, most projects in the liquidity staking space only offer beta returns. Regarding the Ethereum ecosystem, what other narratives can be explored?

Let’s not forget another significant but yet-to-be-fully-realized catalyst – re-staking and EigenLayer. Derived from liquidity staking, the concept of re-staking has gradually evolved into the nested version of liquidity staking tokens (LST) known as Liquidity Re-Staking Tokens (LRT).

Outside of centralized exchanges (CEX), certain tokens related to the LRT concept have recently seen significant gains. It may sound somewhat familiar but not entirely understood in terms of logic.

In this edition, we will help you quickly grasp the logic behind re-staking and LRT, and delve into projects with lower market values or unreleased tokens.

Reviewing Re-Staking and Liquidity Nesting

Re-staking is not a new concept. As early as June last year, EigenLayer introduced the concept of “re-staking” on the Ethereum network. It allows users to re-stake already staked Ethereum or Liquidity Staking Tokens (LST) to provide additional security for various decentralized services on Ethereum and earn additional rewards.

I will not repeat the technical principles of EigenLayer here, assuming that readers have a certain understanding of it.

On the contrary, if you don’t get caught up in the technical details of EigenLayer, it becomes easier to understand the logic of liquidity staking and re-staking.

In essence:

For Ethereum, staking maintains security, while re-staking maintains even more security.

From an investment perspective, staking seeks returns, while re-staking aims for even more returns.

So, from an investment perspective, how is the current method of seeking returns specifically implemented? The following is a simplified version for better understanding:

1. I have ETH and stake it with a Liquidity Staking and Derivatives (LSD) service provider, such as Lido.

2. I receive Liquidity Staking Tokens (LST), for example, stETH.

3. I re-stake stETH into EigenLayer.

4. I earn returns from both steps 1 and 3.

Clearly, before the emergence of EigenLayer, the LST in my possession could only generate one type of return. With EigenLayer, I now have an additional layer of returns, theoretically not at a loss.

However, in the mature re-staking process outlined above, there is a critical issue: liquidity is locked. Your LST, re-staked into EigenLayer, loses the opportunity to invest it elsewhere and generate additional returns.

EigenLayer, as a re-staking layer, returns profits based on your staking input but does not provide the same level of liquidity when holding the token. In the crypto market, which emphasizes capital efficiency, liquidity never sleeps. Speculation-driven scenarios do not accept the complete locking of token liquidity in one place without the ability to expand.

Therefore, the current logic of seeking returns through “staking – re-staking” is not perfect. To give tokens more liquidity and opportunities, Liquidity Re-Staking Tokens (LRT) have emerged. In fact, the principle of LRT is easy to understand, and a simple analogy would be: collateral certificates.

If I have ETH, I can exchange it for Liquidity Staking Tokens (LST), such as stETH. At this point, stETH is essentially a collateral certificate used to prove “I did stake ETH,” but the original asset in my possession is only ETH itself.

Similarly, if I have LST, I can use re-staking to generate a new collateral certificate, demonstrating “I did re-stake stETH,” but the original asset in my possession is still only ETH.

Essentially, this new collateral certificate is the Liquidity Re-Staking Token (LRT), which allows you to engage in additional financial operations. For example, collateralizing and borrowing, addressing the liquidity lock-in situation in re-staking.

If you still can’t understand the principle, you might imagine a set of three nested dolls.

With ETH, you can obtain LST, and with LST, you can obtain LRT. When you have three layers of nested dolls, you can use these three dolls to perform different actions (staking, re-staking, and other income-generating methods). With each layer nested, you gain an additional opportunity to earn returns through liquidity.

So, when Ethereum regains attention, addressing the capital efficiency problem in EigenLayer re-staking could potentially evolve into a new narrative for LRT.

What related projects deserve attention?

Which related projects are worth paying attention to?

Projects related to LRT that attempt to solve the capital efficiency problem are already gaining attention in the current market, and some of them have shown excellent price performance. However, from a research perspective, we tend not to introduce projects that have already been fully price-discovered, such as SSV.

Therefore, in the following attempts to find projects, we are more inclined towards the following two categories:

1. Projects with tokens and a lower market value.
2. Projects without tokens.

Projects with tokens and a lower market value:

SSV Network ($SSV): A seamless reemployment plan for liquidity staking

Previous liquidity staking projects that could stake could also engage in re-staking, representing a form of seamless reemployment with a professional focus.

This logic is clearly embodied in SSV.

On January 4th, SSV announced on Twitter that it has started venturing into the re-staking business. It allows the decentralization of EigenLayer’s validator responsibilities to SSV, leveraging SSV’s decentralized and non-custodial features to enhance the performance and security of its validators. This process not only increases the flexibility and distribution of validator operations but also improves fault tolerance and efficiency, ultimately bringing more benefits and higher security assurance to users.

At the same time, users can also earn additional rewards on their staked ETH assets.

It’s worth noting that SSV’s re-staking nodes are highly distributed, and currently, they can collaborate with four nodes: ANKR, Forbole, Dragon Stake, and Shard Labs, to provide re-staking services.

However, the SSV token has not shown a significant increase in value in the past week. Considering its recognition in the liquidity staking space and the specialized nature of its re-staking business, with a market capitalization of around 3 billion, it can still be expected to perform well in the narrative of re-staking.

Restake Finance ($RSTK): The First Modular Liquidity Re-staking Protocol on EigenLayer

From the project’s name, it’s clear that Restake Finance focuses on conducting re-staking-related business on EigenLayer. Understanding the operational logic of LRT in the previous context makes the operations of Restake Finance straightforward:

1. Users deposit LST generated from liquidity staking into Restake Finance.
2. The project assists in depositing users’ LST into EigenLayer, allowing users to generate re-staked ETH (rstETH) as a re-staking certificate.
3. Users can then use rstETH in various DeFi activities to earn profits, while also receiving rewards points from EigenLayer (considering EigenLayer has not yet issued its tokens).

1. Source: Twitter user @jinglingcookies
2. Additionally, the project has its native token called RSTK, built on the Ethereum blockchain, with functions summarized as governance, staking, and yield enhancement:

3. Governance:
   RSTK holders may participate in the selection process for node operators and AVSs, contributing to the security of Ethereum-related components.

4. Yield Boost:
   RSTK can be staked to increase the yield generated by EigenLayer. 5% of the accumulated EigenLayer re-staking rewards on the Restake Finance platform will be distributed to stakers, allowing them to earn a share of the protocol’s revenue.

   1. Staking RSTK will result in sRSTK tokens, used to track users’ governance and income-sharing rights, which cannot be traded or transferred. If users wish to redeem their RSTK, there is a 45-day unlocking period.

5. As a successful agent for EigenLayer:

6. RSTK is designed to be a successful agent for EigenLayer. With more AVSs joining, wider adoption of EigenLayer, increased yields, and more protocol revenue, the value of RSTK is expected to grow.

Source: Twitter user @jinglingcookies

Overall, there is not much newness in the design of the token function, and it is more of a classic focus on staking to obtain additional income.

But in terms of token performance, RSTK has recently ushered in 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, and according to the author’s observation, smart money has purchased varying amounts of RSTK every day in the past week.

So, is RSTK undervalued?

Considering that SSV Network has also started engaging in re-staking-related business and currently has a market capitalization of $3.3 billion, if re-staking becomes a mainstream choice for mature liquidity staking projects, this probably means that RSTK has about 10 times the potential market value compared to mature projects. If directly comparing it to LDO, there is more potential, but considering LDO’s leading position and the advantage of focusing on its main business LSD, such a comparison may not be practical.

Therefore, the author believes that in the long run, there are not many new projects with tokens that can be bet on in the current LRT narrative. LSD projects are at most Beta yield in seamless re-employment, and projects like RSTK, which have been re-staking from the beginning, are more worthy of attention.

However, in the short term, due to the uncertainty of Bitcoin ETF and the increased possibility of extreme market changes, from an investment research perspective, it might be a better choice to wait until the dust settles and find a stable entry point.

Stader Labs X KelpDAO ($SD): Supporting new organizations in re-staking

Stader Labs is not an unfamiliar name, having emerged in the liquidity staking narrative brought by the Shanghai upgrade last year. However, Stader’s feature is supporting multi-chain staking, as seen on its official website, not only on Ethereum but also supporting staking on various L1 and L2 chains.

And this versatile player smoothly engages in the LRT re-staking business.

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

Users deposit LST such as stETH into the Kelp protocol, exchanging them for rsETH tokens. Subsequently, users use rsETH to perform operations that generate more income. Additionally, due to the interaction with EigenLayer, re-staking not only earns users EigenLayer points but also allows them to extract liquidity using LRT to generate yield while enjoying the income from staking LST.

Regarding tokens, as Kelp DAO currently does not have its own token, Stader Labs’ token SD, which is openly associated with it, could be an interesting focus.

SD has seen a roughly 20% increase in the past week, with a market cap close to RSTK, both in the range of around 35 million. However, unlike RSTK, SD is an old coin with renewed attention after the re-staking narrative. Considering that Kelp DAO is actively engaged in direct business operations but hasn’t issued its own token, there might be expectations for the SD token to be linked to future developments from Kelp, such as airdrops and more.

Prisma ($PRISMA): An Alternative to LRT, Another Choice in LSDFi

While the two mentioned projects with tokens are directly centered around liberating liquidity within EigenLayer, there’s actually more than one way to unleash token liquidity. Another approach in the market is to not directly integrate with EigenLayer but instead leverage their own resources to unlock liquidity and generate income. A notable project representing this approach is Prisma.

Strictly speaking, this project is not an LRT but rather more akin to LSDFi. Prisma entered the public eye about six months ago, gaining attention due to its impressive list of endorsements and investments:

The project received endorsements and investments from the founders of several major projects, including Curve Finance, Convex Finance, Swell Network, and CoingeckoFinance. It also attracted participation from well-known projects such as Frax Finance, Conic Finance, Tetranode, OK Venture, Llama Airforce, GBV, Agnostic Fund, Ankr Founders, MCEG, Eric Chen, and others.

Although the funding amount has not been disclosed, it can be said that Prisma has essentially garnered support from top-tier DeFi projects across the board.

The way Prisma releases LST liquidity is:

1. Deposit LST into Prisma protocol
2. Mint’s stablecoin named mkUSD
3. Use mkUSD to generate income through staking, mining, lending and other activities in different DeFi protocols and release the liquidity of LST

In terms of tokens, PRISMA has experienced ups and downs in the past month, with an amplitude of more than 1 times between high and low points. 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 the impact of news.

Considering the luxurious endorsement lineup, why is the current market value of the project so low? The narrative of LSDFi has a certain appeal, but this does not completely mean that the project is underestimated. Instead, the following points need to be considered:

1. The circulating market value of PRISMA does not take into account the locked tokens, and approximately 22 million PRISMA in the project have not been calculated;
2. Locked tokens can be withdrawn and sold to the market at any time, which may also have an impact on prices;
3. According to Twitter user @lurkaroundfind, Sun Ge owns 1/3 to 1/2 of the total PRISMA TVL, which is also an unstable factor.

But instability + small market capitalization means certain operating opportunities.

Overall, it seems that PRISMA’s market value is very small, but it endorses luxury and follows the LSDFi narrative. There is no particularly large migration cost for subsequent transfers to LRT, and the possibility of using the narrative to cause trouble cannot be ruled out.

It is recommended that a reasonable operation should be to allocate small positions to gain profits in the band pump & dump.

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

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

The target that meets this search criteria currently includes Picasso Network.

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

However, the plan is currently targeting the gap in the liquidity re-staking track in the Solana ecosystem, trying to achieve re-staking in the Solana ecosystem 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:

1. Provides a validator for Solana through Picasso’s Solana<>IBC connection;
2. Users can re-stake LST tokens such as mSOL/jSOL/Orca LP/bSOL on Solana’s liquid staking items (such as Marinade/Jito/Orca/Blaze) to the validator;
3. Earn re-staking income while protecting network security.

One potential opportunity is that Solana’s liquidity staking rate is lower than that of ETH. Data shows that about 8% of SOL is still unstaking, which is good for liquidity staking and also good for liquidity re-staking.

Given that Solana’s liquidity staking project has experienced widespread gains before, if Ethereum’s re-staking narrative rears its ugly head, market funds may once again spill over to the same narrative of Solana.

In terms of tokens, Picasso has experienced a nearly doubled increase in the past week, with its market value 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 only liquidity re-staking, so its market value cannot be completely compared with similar projects on Ethereum.

Considering that the Solana ecosystem has not performed as well as Ethereum-related projects in the past week, Picasso can be used as an alternative in the investment portfolio and cooperate with observing the flow of funds to Solana before making operations.

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.

Due to space reasons, only a brief list and description are provided here. Interested readers can check the project’s social media and official website for more information.

Puffer Finance: Lowering the validator threshold through native re-staking

EigenLayer has a 32 ETH threshold requirement for general Ethereum re-staking nodes, which can be reached before AVS can be run.

Puffer’s re-staking function is to lower this threshold below 2 ETH in an attempt to attract small nodes.

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

Swell used to do liquidity staking on Ethereum, and recently announced a re-staking function, which allows ETH to be deposited and exchanged for rswETH.

Considering that Swell has not issued coins yet, LSD could be exchanged for points before. Now participating in re-staking can also increase the chance of points.

ether.fi: Providing a seamless re-staking experience

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

In addition to the above, there are still some items not listed due to space limitations. But if LRT is hot enough, I believe that these unissued currency projects will actively market and attract users to re-stake, and it will only be a matter of time before everyone discovers it.

Summary

In the process of conducting this research, the author has also been contemplating whether liquidity restaking represents progress. From the perspective of Ethereum, it indeed enhances security across various projects through EigenLayer.

However, considering practical benefits, it appears more like a speculative leverage for liquidity creation. The concept of leverage here means that the original assets remain the same, but through token mapping and locking of rights, one can continuously leverage the original ETH through nesting dolls, creating multiple derivative certificates.

On a positive note, these derivative certificates significantly activate liquidity in favorable conditions, making the market more conducive to speculative activities. On the downside, protocols issuing derivatives are interconnected due to liquidity. Holding A allows the extraction of B, borrowing B can activate C, and if protocol A itself encounters issues (hack attacks or malicious activities) and has a substantial volume, the resulting risks are continuous.

While riding the upwind, leveraging can thrive, but in adverse conditions, everything scatters like birds and beasts.

Ethereum has opened up vast territory, and EigenLayer is like constructing a racetrack on this open ground. For liquidity seekers hungry for returns and willing to take risks, giving them a reason to run on this track couldn’t be better.

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

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