What is the story behind the top three contenders in the LRT battle: ether.fi, Puffer Finance, and Kelp DAO?

A series of derivative protocols related to Ethereum PoS staking has recently reached another peak. The Liquid Restaking Protocol (LRT), in collaboration with the restaking project EigenLayer, has opened up a new battlefield for DeFi players to improve capital efficiency and expect airdrop rewards, introducing the concept of Liquid Restaking Tokens (LRT).

Lido has the highest market share among Ethereum PoS staking service providers that include exchanges and on-chain protocols, accounting for 31.7% as of the deadline. A total of 9.46 million ETH, worth approximately $21.7 billion, is staked on Ethereum through Lido. Coinbase is the second-largest with a share of 14.5%, indicating a significant difference in scale.

Lido provides Ethereum staking services to the community, sharing staking rewards and issuing liquid staking tokens called stETH, which allows users to unlock the liquidity of their staked ETH. Protocols like Lido are also known as Liquid Staking Protocols.

When stETH was introduced, it was attempted for various applications such as collateral for stablecoins, interest rate trading protocols, and inclusion in investment portfolios. However, it did not bring about significant network effects.

It was not until EigenLayer’s proposition emerged that the justification for “restaking” stETH became more legitimate. (Of course, EigenLayer also accepts tokens from many other staking service providers.) EigenLayer aims to address the difficulties of establishing consensus networks and the fragmentation of DApp security to serve projects that need to construct their own consensus networks, known as actively validated services (AVS).

EigenLayer has built a new decentralized network that allows AVS projects to extend Ethereum’s security without having to issue their own tokens or build their own consensus networks, ensuring that DApps do not compromise their security when using external infrastructure.

With the integration of EigenLayer’s anticipated airdrop rewards, a total of 190,000 stETH has been restaked, albeit a small portion of the overall stETH supply.

Let’s summarize the story to understand the emergence of the Liquid Restaking Protocol:
1. From being an ETH holder, you become an ETH staker through Lido.
2. Lido provides you with stETH, unlocking the liquidity of your staked ETH.
3. In the story of AVS and anticipated airdrops, you restake your stETH to EigenLayer, becoming a restaker of stETH.
4. To unlock stETH and enjoy capital liquidity while adding anticipated airdrop rewards, the Liquid Restaking Protocol (LRT) has been introduced. It allows you to restake on EigenLayer.

The earnings from liquid restaking include the ETH staking annualized interest rate, staking service provider bonuses, EigenLayer points, and restaking service provider points. This has attracted the attention of many people. For instance, Puffer Finance, currently the second-largest TVL, is a typical example. It absorbs stETH to recruit restakers for EigenLayer and provides users with its own liquid restaking token, pufETH. (Note: Puffer Finance plans to launch its native restaking service in the long run.)

Ether.fi, the first-ranked TVL, has its own Ethereum PoS staking service and incorporates restaking with EigenLayer, providing users with the eETH liquid restaking token. Therefore, it does not directly absorb stETH from Lido.

Kelp DAO, ranked third, can accept multiple Ethereum PoS staking services: Stader (ETHx) and Lido (stETH). It restakes on EigenLayer and provides users with its own liquid restaking token, rsETH.

All these Liquid Restaking Tokens (LRT) give users points based on the staking amount and time, and encourage community activities and teamwork to earn point bonuses and leverage airdrop expectations. Puffer Finance, for example, utilizes many Key Opinion Leaders (KOLs) to form teams to attract liquidity, along with the support of EigenLayer’s founder, leading to a rapid increase in TVL.

EigenLayer is aggressively attracting Ethereum staking tokens and attempting to use this capital to provide consensus networks for other infrastructures, extending to other blockchains. This is why many layer two solutions are declaring partnerships with EigenLayer. It may be due to the limitless imagination of EigenLayer that the Liquid Restaking Protocol is flourishing, as everyone wants a share of the pie on EigenLayer.

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