Revelo Roundtable #4 - LRTs - Revelo Intel

Revelo Roundtable #4 – LRTs

In Revelo Intel’s Twitter Spaces which took place on March 7, 2024, Kirk from Revelo Intel hosted Rok Kopp from Ether.fi, Amit from Stader Labs, Eshwar from Kelp Dao, Genie from Swell Network, and Philip from Inception to discuss the future of liquid staking and restaking, innovations, challenges, and strategies among key players ether.fi, Stader Labs, Kelp Dao, Swell Network, and Inception in the evolving DeFi ecosystem, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Rok Kopp (Guest) – Co-Founder of ether.fi 

Amit (Guest) – Co-Founder of Stader Labs

Eshwar (Guest) – Head of Business and Partnership at Kelp Dao

Genie (Guest) – Head of Growth at Swell Network

Philip (Guest) – Core Contributor at Inception

ether.fi – a liquid restaking protocol

Stader Labs – a non-custodial smart contract-based liquid staking platform that helps you earn staking rewards while also accessing DeFi opportunities conveniently

Kelp Dao – LRT solution, rsETH, on EigenLayer for Ethereum

Swell Network  – a permissionless, non-custodial, and liquid ETH Staking protocol that is built for stakers, node operators, and the Ethereum ecosystem

Inception –  an isolated Liquid Restaking protocol for Liquid Staking Tokens (LSTs), enabling the restaking of various LSTs with the initial focus on stETH and rETH.

Exploring Innovations and Challenges in Liquid Staking: Insights

  • Rok explains that ether.fi offers staking rewards, ether.fi points, EigenLayer points, and maintains composability for users in various DeFi protocols. Rok highlights that ether.fi natively stakes $ETH on the beacon chain, differentiating it from other staking methods.
  • Amit highlights the achievements of Stader Labs and Kelp Dao in the liquid staking protocol space. Amit outlines the features and partnerships of Stader Labs and Kelp Dow, highlighting their focus on security and comprehensive liquid staking solutions.
  • Genie describes Swell Network as both an LST and an LRT platform. He explains Swell’s offerings, including $swETH and $rswETH, and mentions upcoming DeFi integrations and L2 developments. Genie highlights the native restaking through EigenLayer and the forthcoming capability to accept other LSTs.
  • Philip shares his background in wealth management and liquid staking at Anchor. He introduces Inception as an isolated liquid restaking protocol supporting 12 LSTs on EigenLayer, highlighting the importance of isolated risk and predictability for users. Philip says that isolated LRTs will be crucial for maintaining competitiveness in the liquid restaking wave.
  • Rok says the biggest issue is the gap between the needed $11 billion for restaking and the existing $1 billion demand. He highlights the necessity for more development to meet the hype around the EigenLayer, predicting a future trough of disillusionment but remains optimistic about long-term staking on Ethereum.
  • Amit highlights restaking, crypto AI, and Bitcoin L2s as major narratives from ETHDenver. He says the demand for restaking on EigenLayer will increase as more applications adopt it for economic security, citing significant economic benefits and the potential for attracting more developers and projects.
  • Genie describes the excitement around EigenLayer but recognizes the premature rush of funds without sufficient live services for validation. He anticipates the development of services offering yields to stakers, suggesting a watchful approach to upcoming projects.
  • Philip agrees, noting the substantial opportunity with EigenLayer, especially its potential to surpass all Ethereum L2s due to its modular risk exposure. He points out the lack of institutional adoption so far, hinting at broader acceptance and the possibility of including $BTC on Ethereum as restakeable assets, which could diversify capital beyond Ethereum-centric assets.

Liquid Staking Space: Diverse Approaches to Security, Customer Focus, and Market Penetration

  • Kirk asks about strategies for maintaining market momentum and creating a distinct identity in the competitive space of liquid staking protocols.
  • Rok says the liquid staking space is vast, with multiple players likely to coexist rather than a single winner taking all. He highlights Ethereum’s benefit and their commitment to it, including giving 1% to the Protocol Guild. He mentions the selection of AVSs to avoid slashing events, highlighting the importance of safety over higher APRs. He also points out the potential for bringing institutions into DeFi through liquid staking.
  • Amit says he views restaking as a blue ocean and focuses on customer needs rather than competitor activities. He mentions their protocol’s emphasis on security across smart contracts, non-custodial practices, and AVS security assessment.
  • Amit highlights the importance of solving customer problems, ensuring security, and offering rewards and DeFi opportunities as key to their strategy.
  • Genie agrees with Rok’s views on the future displacement of Lido and how to stand out in the restaking field. Swell’s unique approach includes integrating LST and LRT in their offerings to make their platform as user-friendly as possible, focusing on building a complete stack for the consumer.
  • Kirk asks about strategies beyond utilizing points for market penetration, noting the potential end of point-related growth due to EigenLayer’s developments.
  • Genie recognizes the importance of considering future strategies beyond points, especially with EigenLayer’s potential token launch. They mention working with AVS and building out a risk framework, highlighting their first blog post about AVS security.
  • Philip says that as an LRT, one cannot choose the AVS; it’s up to node operators. He highlights Inception’s unique isolated LRT architecture and its competitive advantage. 
  • Philip highlights the importance of withdrawals, additional audits for evolving protocols, and strategies to mitigate slashing risks through partnerships and insurance solutions.
  • Kirk mentions Lido as a dominant player and questions whether it will enter the LRT space and its impact on the market.
  • Genie expresses skepticism about Lido launching an LRT soon, given their established position as the leading LST and the associated risks.
  • Amit shares insights from conversations with the Lido team which suggested no immediate plans to build an LRT. He speculates that if Lido did enter the LRT space, it could positively impact the ecosystem by increasing available assets for AVS.

Mitigating Risks in EigenLayer’s Liquid Restaking: Slashing Prevention and User Safety

  • Kirk discusses the risks associated with EigenLayer and liquid restaking, questioning if the concerns about restaking are exaggerated or not adequately addressed. He asks about the measures being taken to ensure user safety and mitigate risks such as slashing events.
  • Philip says that to minimize slashing risks, they plan to select professional node operators for DVT deployment. He says slashing won’t be activated on EigenLayer immediately, giving the market time to adapt.
  • Philip mentions the potential for on-chain and off-chain insurance solutions to mitigate risks. He highlights the importance of users being informed about these risks in a permissionless DeFi environment.
  • Amit says that while short-term risks are low due to the delayed implementation of slashing, long-term risk management is crucial. He mentions developing their own risk assessment framework and seeking external expertise. 
  • Amit anticipates the emergence of insurance models to increase trust and mitigate slashing risks, highlighting plans for DAO-based governance and community involvement in decision-making processes.
  • Kirk asks about the selection of AVS and the involvement of DAO in this complex process, highlighting the need for expertise in decision-making while respecting DeFi governance principles.
  • Genie explains their approach to assessing risks associated with different AVS and the importance of establishing selection criteria through industry collaboration. He mentions working with external parties like Gauntlet and developing standardized processes for AVS selection.
  • Genie addresses concerns about restaking risks being overblown, saying that on-chain transparency differentiates it from situations like FTX while acknowledging the reality of slashing risks.
  • Philip says that they do not plan to become a node operator and, thus cannot select AVS directly. He mentions discussions with tier-one operators who prefer not to make AVS selections themselves, suggesting a future where partnerships could influence AVS strategy choices.
  • Philip envisions a model where indirect AVS exposure is selected through node operators partnered with AVS advisory companies.

Self-Limitation and Innovation in Decentralization: Insights and Anticipations

  • Kirk asks about the topic of self-limiting to preserve decentralization, mentioning Rok’s earlier comment on considering self-limitation for this purpose.
  • Amit shares their commitment to self-limit at 22% of $stETH, highlighting that market forces should determine size rather than artificial limits. He respects Lido‘s decision not to self-limit, advocating for market-driven outcomes over forced limitations.
  • Genie expresses skepticism about the effectiveness of shaming strategies for self-limitation, as used by Rocket Pool against Lido. He prefers to let market dynamics regulate dominance and points to the decreasing market share of Lido as a positive trend, suggesting a wait-and-see approach to the issue of self-limitation.
  • Amit highlights the excitement around conversations with distribution and AVS partners, addressing the complex challenges and variables in the ecosystem. He looks forward to sharing thoughts on risk and pricing models, highlighting the importance of feedback and collaboration in the spirit of EigenLayer’s principles of an infinite sum game. Amit mentions the goal of onboarding more AVS partners and growing the TVL.
  • Philip shares enthusiasm for EigenLayer’s technical evolution and its impact on their operations, highlighting the upcoming launch of a flash and stake feature aimed at enhancing capital efficiency for secondary market liquidity. 
  • This feature, set to be available in two to three weeks, will be integrated into their LRT system and facilitate omni-chain functionality. Philip discusses the potential of unlocking dormant $ETH in layer-2s through LRT, which provides exposure to layer-2 choices and EigenLayer simultaneously, hinting at a future where $BTC LSTs might be integrated.
  • Genie expresses anticipation for EigenLayer’s token launch and the activation of AVS, along with the introduction of new products. On the Swell side, Genie notes the recent launch of withdrawals for $swETH LST, upcoming withdrawals for $swETH, new DeFi and L2 integrations for $swETH, and teases a significant announcement hinted at in Swell‘s latest tweet.

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Show Information

  • Medium: Twitter (Audio)
  • Show: Revelo Intel Twitter Space 
  • Show Title: Revelo Roundtable #4 – LRTs
  • Show Date: March 07, 2024