By Lawrence Lee, researcher at Mint Ventures
After securing two consecutive funding rounds, including a $12 million investment led by Polychain and funding from Binance Labs, Solayer, a restaking project on the Solana chain, has emerged as one of the few highlights in the DeFi space recently. Its TVL has been steadily increasing, now surpassing Orca and ranking 12th in TVL on the Solana chain.
Solana Project TVL Rankings
Source: DeFiLlama
As a core crypto-native subsector, the staking sector boasts the largest Total Value Locked (TVL) among all crypto industries. Yet, despite its prominence, the representative tokens of major staking projects, such as LDO, EIGEN, and ETHFI, have struggled significantly in this cycle. Aside from the inherent factors tied to the Ethereum network, are there any additional reasons behind these challenges?
How competitive are staking protocols and restaking protocols in the broader staking ecosystem, particularly when centered on user staking behaviors?
What are the differences between Solayer’s restaking model and Eigenlayer’s restaking?
And ultimately, is Solayer’s restaking approach a promising business model?
This article seeks to address these questions by first exploring staking and restaking in the context of the Ethereum network.
Competitive Landscape and Development of Liquid Staking, Restaking, and Liquid Restaking on Ethereum
In this section, we will focus on analyzing three key projects:
Lido: The leading liquid staking protocol on the Ethereum network
Eigenlayer: The most prominent restaking protocol
Etherfi: A top representative of liquid restaking protocols
Lido: Business Logic and Revenue Model
The business logic of Lido can be summarized as follows:
Due to Ethereum’s commitment to decentralization, its PoS mechanism imposes soft limitations on the staking capacity of a single node. A single node achieves optimal capital efficiency by staking a maximum of 32 ETH. At the same time, Ethereum staking requires relatively high levels of hardware, network infrastructure, and technical expertise, which creates a high entry barrier for the average user. Under these conditions, Lido pioneered and popularized the LST concept. While the liquidity advantages of LST were somewhat weakened after Shapella’s upgrade, which allowed for withdrawals, their strong benefits in terms of capital efficiency and composability remain. These advantages form the foundation of business logic for LST protocols represented by Lido. In the liquid staking sector, Lido dominates the market, maintaining a nearly 90% market share and leading the way by a significant margin.
Liquid Staking Participants and Market Share
Source: Dune
Lido’s revenue primarily comes from two sources: consensus layer rewards and execution layer rewards. The so-called consensus layer rewards refer to the staking rewards issued by Ethereum’s PoS system. For the Ethereum network, these expenditures are designed to maintain network consensus, which is why they are referred to as consensus layer rewards. This portion of revenue is relatively stable (represented by the orange section in the chart below). The execution layer rewards include priority fees paid by users and MEV (For more analysis on execution layer rewards, readers can refer to previous articles by Mint Ventures for additional insights.). This portion of the revenue is not paid by the Ethereum network but by users during transaction execution (either directly or indirectly). This revenue fluctuates significantly as it depends on the level of on-chain activity and network demand.
Lido Protocol APR
Source: Dune
Business Logic and Revenue Composition of Eigenlayer
The concept of Restaking was introduced by Eigenlayer last year and has since become a rare new narrative within the DeFi sector and even the broader market over the past year. This narrative has led to the emergence of a series of projects with FDV exceeding $1 billion at launch (besides EIGEN, there are ETHFI, REZ, and PENDLE), as well as numerous restaking projects yet to launch (such as Babylon, Symbiotic, and Solayer, which we will discuss in detail later). The market enthusiasm is undeniable (Mint Ventures conducted research on Eigenlayer last year, and interested readers can check it out).
According to its definition, Eigenlayer’s Restaking allows users who have already staked ETH to restake their previously staked ETH on Eigenlayer (thus earning additional rewards), which is why it is called “Re”Staking. Eigenlayer refers to the services it provides as AVS (Actively Validated Services), which can offer security services for various protocols with security requirements. These include sidechains, DA layers, virtual machines, oracles, bridges, threshold cryptography schemes, trusted execution environments, and more. EigenDA is a typical example of a protocol utilizing Eigenlayer’s AVS services.
Protocols Currently Using Eigenlayer AVS
Source: Eigenlayer Official Website
The business logic of Eigenlayer is relatively simple. On the supply side, they gather assets from ETH stakers and compensate them with fees. On the demand side, protocols require AVS pay to utilize their services. Eigenlayer acts as a “protocol security marketplace,” facilitating matchmaking and earning a portion of the fees in return.
However, looking at all current restaking projects, the only tangible revenue still comes from the tokens (or points) of the associated protocols. It’s uncertain whether restaking has truly achieved PMF: From the supply side, everyone enjoys the additional rewards that restaking provides. But on the demand side, things remain murky: will there truly be protocols willing to pay for economic security services? And if so, how much demand will there be?
Kyle Samani, the founder of Multicoin, raises questions about the business model of restaking. Source: X
Looking at the target users that Eigenlayer has issued tokens for, including oracles (LINK, PYTH), bridges (AXL, ZRO), and DA (TIA, AVAIL), we can see that staking tokens to maintain protocol security is already a core use case for their respective tokens. Choosing to purchase security services from Eigenlayer would severely weaken the rationale behind these protocols issuing their own tokens. Even for Eigenlayer itself, when explaining its EIGEN token, it uses vague and abstract language to convey the idea that “using EIGEN token to maintain protocol security” is a primary use case.
Survival Strategy for Liquid Restaking (Etherfi)
Eigenlayer supports two methods for participating in restaking. Firstly, Using LST. To participate via LST, users simply deposit ETH into an LST protocol to mint their LST, then deposit the LST into Eigenlayer. This approach is relatively simple. However, there are long-term caps on the LST pool for Eigenlayer. For users who still want to participate despite the caps, they need to go through native restaking, which follows the steps below:
Users need to independently complete the entire ETH staking process on Ethereum, including preparing funds, configuring execution and consensus layer clients, and setting up withdrawal credentials.
They then create a contract account within Eigenlayer, known as an Eigenpod.
Finally, users must assign the withdrawal private key of their Ethereum staking node to the Eigenpod contract.
Eigenlayer’s restaking approach adheres closely to the principles of “re”staking. Whether users deposit LST or engage in native restaking, Eigenlayer never directly manages or interacts with users’ staked ETH (Eigenlayer doesn’t issue any form of LRT). However, native restaking workflow is essentially a more complex version of native staking. This means it requires similar levels of capital, hardware, network resources, and technical knowledge, creating significant barriers for average users.
Projects like Etherfi quickly stepped in to address these challenges by introducing Liquid Restaking Tokens (LRTs). The operation process for Etherfi’s eETH works as follows:
Users deposit ETH into Etherfi, and Etherfi issues eETH to the users.
Etherfi then stakes the ETH it receives to generate the base staking rewards.
Simultaneously, Etherfi follows Eigenlayer’s native restaking process by assigning the withdrawal private keys of nodes to an Eigenpod contract account, enabling users to earn restaking rewards from Eigenlayer (and $EIGEN、 $ETHFI).
For ETH holders seeking to earn rewards, Etherfi’s service is clearly the most optimal solution. On the one hand, the eETH token is easy to use, offers liquidity, and provides a user experience similar to Lido’s stETH. On the other hand, depositing ETH into Etherfi’s eETH pool enables users to earn: around 3% base ETH staking rewards, potential AVS rewards from Eigenlayer, token incentives (points) from Eigenlayer, and token incentives (points) from Etherfi.
eETH accounted for 90% of Etherfi’s TVL, contributing over 6 billion in TVL at its peak and reaching an FDV of up to 8 billion. This made Etherfi the fourth-largest staking entity in just six months.
Etherfi TVL Distribution
Source: Dune
Staking Volume Rankings
Source: Dune
The long-term business logic of the LRT protocol lies in helping users participate in both staking and restaking in a simpler and more accessible manner, thereby achieving higher yields. Since it does not generate any revenue itself (apart from its own token), the overall business logic of the LRT protocol is more akin to a specific yield aggregator for ETH. Upon closer analysis, its business logic depends on the following two premises:
Lido cannot provide liquid restaking services. If Lido were to make its stETH similar to eETH, Etherfi would struggle to match Lido’s long-term advantages in branding, security credibility, and liquidity.
Eigenlayer cannot provide liquid staking services. If Eigenlayer were to directly absorb users’ ETH for staking, this would significantly weaken Etherfi’s value proposition as well.
From a purely business logic perspective, as the leader in liquid staking, Lido providing liquid restaking services could offer users a broader range of revenue opportunities. Similarly, Eigenlayer directly accepting user funds for staking and restaking would be a more convenient and viable approach. So, why doesn’t Lido offer liquid restaking, and why doesn’t Eigenlayer provide liquid staking?
The author believes this restraint is determined by Ethereum’s unique context. In May 2023, during a period of intense market discussions after Eigenlayer completed a new $50 million funding round, Ethereum founder Vitalik Buterin specifically penned an article titled “Don’t Overload Ethereum’s Consensus”. In this article, he provided detailed examples to explain his views on how Ethereum’s consensus mechanism should (or should not) be repurposed—essentially addressing “how we should be doing restaking”.
On the Lido side, since its scale has long accounted for roughly 30% of Ethereum’s staking, voices within the Ethereum Foundation calling for restrictions on its influence have been persistent. Vitalik himself has written multiple articles discussing the centralization risks associated with staking, which has forced Lido to align its business priorities with Ethereum’s broader goals. This alignment has led Lido to progressively shut down activities on all chains outside of Ethereum, including Solana, and focus exclusively on Ethereum. Additionally, the facto leader, Hasu, published an article in May this year, confirming the abandonment of any potential for Lido to directly engage in restaking activities. Instead, Lido has chosen to confine its business to staking while supporting restaking protocols like Symbiotic through investments. Lido has also established a Lido Alliance to respond to competition from LRT protocols like Eigenlayer and Etherfi that threaten its market share.
Reaffirm that stETH should stay an LST, not become an LRT.
Support Ethereum-aligned validator services, starting with preconfirmations, without exposing stakers to additional risk.
Make stETH the #1 collateral in the restaking market, allowing stakers to opt into additional points on the risk and reward spectrum.
Lido’s position on matters related to restaking Source
On the Eigenlayer side, Ethereum Foundation researchers Justin Drake and Dankrad Feist were recruited as advisors by Eigenlayer early on. Dankrad Feist stated that his primary purpose for joining was to “align Eigenlayer with Ethereum,” which might also explain why Eigenlayer’s native restaking process significantly compromises user experience.
In a sense, Etherfi’s market potential arises from the Ethereum Foundation’s “distrust” towards Lido and Eigenlayer.
Analysis of the Ethereum Staking Ecosystem Protocols
By analyzing Lido and Eigenlayer, we can identify three main sources of long-term revenue generated from staking activities on current PoS chains, aside from token incentives provided by affiliated projects:
PoS Base Rewards: These are native tokens paid by the PoS network to maintain network consensus. The yield from this source primarily depends on the chain’s inflation policy. For example, Ethereum’s inflation policy is tied to the staking ratio — the higher the staking ratio, the slower the inflation rate.
Transaction Ordering Rewards: These are earnings validators can collect during the process of packaging and ordering transactions, including user-paid priority fees and MEV rewards. The yield from this source largely depends on the level of activity within the network.
Revenue from Renting Staked Assets: This involves lending staked assets to other protocols in need, in exchange for fees paid by those protocols. The yield from this source depends on how many protocols with demand for Additional Validation Security (AVS) are willing to pay fees to obtain enhanced protocol security.
On the Ethereum network, staking-related activities currently involve three types of protocols:
Liquid Staking Protocols represented by Lido and Rocket Pool. These protocols can only capture the first and second types of revenue mentioned above. While users can use their LST to participate in restaking, as protocols themselves, their revenue share is limited to the first and second categories.
Restaking Protocols represented by Eigenlayer and Symbiotic. These protocols can only capture the third type of revenue.
Liquid Restaking Protocols represented by Etherfi and Puffer. In theory, they can acquire all three types of revenue but are more akin to “LST that aggregate restaking revenue.”
Currently, Ethereum’s PoS base rewards yield an annualized return of approximately 2.8%, which gradually decreases as the staking ratio of ETH increases.
Transaction ordering revenue has significantly declined following the implementation of EIP-4844 and has been around 0.5% over the past six months.
The revenue base for staking asset rental remains relatively small and cannot yet be annualized. Most of the incentives in this category rely on token rewards from Eigen and related LRT protocols, which make this sector appear more lucrative.
For LST protocols, their revenue base is calculated as the staking amount multiplied by the staking yield. Currently, the staking ratio of ETH is approaching 30%. Although this figure is still significantly lower than that of other PoS chains, the Ethereum Foundation, from the perspectives of decentralization and economic bandwidth, does not aim for too much ETH to be staked (as referenced in Vitalik’s recent blog post, where the Ethereum Foundation once discussed capping ETH staking at 25% of the total supply). Meanwhile, staking yields have been consistently declining. From late 2022, when yields were stable at around 6%, with occasional short-term APRs reaching approximately 10%, they have now decreased to only 3%, with no foreseeable catalysts for recovery.
For the governance tokens of the aforementioned protocols, in addition to being constrained by the declining performance of ETH itself:
The market cap ceiling for Ethereum LSTs has become increasingly apparent, which may explain the poor price performance of governance tokens like LDO and RPL.
For EIGEN, other PoS chains, including the Bitcoin network, are seeing a growing number of emerging restaking protocols, effectively confining Eigenlayer’s business to the Ethereum ecosystem. This further limits the potential size of the AVS market, which was already unclear to begin with.
The unexpected emergence of LRT protocols, such as ETHFI, which at its peak reached an FDV of over $8 billion — surpassing the historical peak FDVs of both LDO and Eigen — has further “diluted” the value of these two categories within the staking ecosystem.
For protocols like ETHFI and REZ, in addition to the aforementioned factors, the unrealistically high initial valuations driven by market hype during launch periods have become a more significant factor negatively impacting their token prices.
Staking and Restaking on Solana
The operational mechanism of Solana network’s liquid staking protocols, represented by Jito, is fundamentally no different from those on the Ethereum network. However, Solayer’s restaking differs from Eigenlayer’s restaking. To understand Solayer’s restaking, we must first become familiar with Solana’s swQoS mechanism.
Solana’s swQoS (stake-weighted Quality of Service) mechanism officially came into effect following a client version upgrade this April. The swQoS mechanism aims to enhance the network’s overall efficiency, as Solana experienced prolonged network congestion during the meme craze in March.
In simple terms, after the activation of swQoS, block producers prioritize transactions based on the staking amount of stakers. Stakers holding x% of the total staking amount in the network are allowed to submit up to x% of the network’s transactions. (For a detailed explanation of the specific mechanics of swQoS and its profound impact on Solana, readers can refer to Helius’ article.) After the implementation of swQoS, the transaction success rate on the Solana network improved significantly.
Solana Network’s Successful and reverted TPS Source: Blockworks
The swQoS mechanism prioritizes transactions from larger stakers by effectively “overwhelming” the transactions of smaller stakers when network resources are limited. This ensures that the rights of larger stakers are protected during periods of congestion, mitigating attacks on the system by malicious transactions. To some extent, the idea that “the more you stake, the more privileges you enjoy” aligns with the logic of PoS blockchains. Staking a larger proportion of the native tokens contributes more to the chain’s stability and the ecosystem, so earning additional privileges seems reasonable. However, the centralization issues stemming from this design are also evident: larger stakers naturally benefit from more transaction privileges, which in turn attract more staking, reinforcing the advantages of top stakers. Over time, this cyclical advantage could lead to oligopolies or even monopolies. This trend contradicts the ideals of decentralization that blockchain technology champions. That said, this is not the focus of this discussion. From Solana’s consistent development trajectory, it is clear that Solana adopts a pragmatic “performance-first” approach when it comes to the issue of decentralization.
Under the context of swQoS, the target users of Solayer’s restaking are not oracles or bridges but rather protocols that require transaction finality and reliability, such as DEX. Consequently, Solayer refers to the AVS provided by Eigenlayer as Exogenous AVS, as these services typically cater to systems outside the Ethereum mainnet. On the other hand, Solayer refers to its own services as Endogenous AVS, since its target systems are directly located on the Solana mainnet.
Differences Between Solayer and Eigenlayer
Source
It can be observed that, although both Solayer and Eigenlayer aim to “re-stake” staked assets by leasing them to other protocols in need, the core services provided by Solayer’s Endogenous AVS and Eigenlayer’s Exogenous AVS are fundamentally different. Solayer’s Endogenous AVS essentially functions as a “transaction finality leasing platform,” targeting platforms (or their users) that require transaction finality. In contrast, Eigenlayer serves as a “protocol security leasing platform.” The foundation of Solayer’s Endogenous AVS lies in Solana’s swQoS mechanism. As Solayer states in its documentation:
We did not fundamentally agree with EigenLayer’s technical architecture. So we re-architected, in a sense, restandardized restaking in the Solana ecosystem. Reusing stake as a way of securing network bandwidth for apps. We aim to become the de facto infrastructure for stake-weighted quality of service, and eventually, a core primitive of the Solana blockchain/consensus.
Of course, if there are other protocols on the Solana chain that require staked assets, such as for protocol security purposes, Solayer can also lease its SOL to these protocols. In fact, by definition, any lending or reuse of staked assets can be referred to as restaking and is not necessarily limited to security needs. Due to the existence of Solana’s swQoS mechanism, the scope of restaking services on the Solana chain is broader than that on the Ethereum chain. Moreover, judging from Solana’s recent surge in on-chain activity, the demand for transaction finality is far more rigid than the demand for security.
Is Solayer’s restaking a good business?
The business process for users participating in Solayer’s restaking is as follows:
Users deposit SOL directly into Solayer, and Solayer issues sSOL to the users.
Solayer stakes the received SOL, earning basic staking rewards.
Meanwhile, users can delegate their sSOL to protocols that require transaction throughput, thereby earning fees paid by these protocols.
The current sources of Solayer’s AVS
Source
It is evident that Solayer is not just a restaking platform but also a restaking platform that directly issues LST. From the perspective of its business process, it is similar to Lido on the Ethereum network, which supports native restaking.
As mentioned earlier, there are three sources of income related to staking activities. On the Solana network, these three sources of income are as follows:
PoS Base Rewards: These are rewards in SOL paid by the Solana network to maintain network consensus. This part provides an annualized yield of approximately 6.5% and is relatively stable.
Transaction Ordering Rewards: These are fees earned by nodes during the process of transaction batching and ordering. They include priority fees paid by users to expedite their transactions and tips paid by MEV searchers. Together, these provide an annualized yield of about 1.5%, though this number is highly variable and depends on the level of on-chain activity.
Revenue from Renting Staked Assets: These are earned by leasing staked assets to protocols that require them (for purposes such as transaction throughput, protocol security, or other use cases). Currently, this revenue stream has not yet scaled significantly.
Total APY for SOL Liquid Staking (e.g, JitoSOL) and Sources of MEV Rewards
Source
If we carefully compare the aforementioned three types of rewards on Ethereum and Solana, we can see that while SOL’s market capitalization is still only 1/4 of ETH’s, and the market capitalization of staked SOL is only about 60% of staked ETH’s, Solana’s staking-related protocols have, in fact, a larger current market and an even greater potential market compared to Ethereum’s staking-related protocols. This is due to the following reasons:
PoS Base Rewards: The network issuance rewards paid by SOL have already surpassed those of ETH since December 2023, and the gap continues to widen. For both ETH and SOL staking, this accounts for over 80% of the staking yield, which establishes the revenue baseline for all staking-related protocols.
The token issuance rewards for Ethereum and Solana (i.e., the network’s PoS base rewards)
Source：Blockworks
2. Transaction Ordering Rewards: Blockworks uses transaction fees and MEV tips to reflect the REV （Real Economic Value) of a chain. This metric approximately represents the maximum potential transaction ordering rewards a chain can capture. While the REV of both chains fluctuates significantly, Ethereum’s REV has declined sharply following the Cancun upgrade, whereas Solana’s REV has shown an overall upward trend and has recently surpassed that of Ethereum.
The REV of Solana and Ethereum
Source：Blockworks
In terms of staking asset rental yields, compared to the Ethereum network, which currently only offers security yields, Solana’s swQoS mechanism enables additional transaction throughput rental demand.
Furthermore, Solana’s staking-related protocols can expand their business operations based on commercial logic. Any liquid staking protocol can conduct restaking operations, as demonstrated by Jito. Similarly, any restaking protocol can issue LSTs (Liquid Staking Tokens), such as Solayer and Fragmetric.
More importantly, we currently see no possibility of a reversal in these trends. This suggests that the advantages of Solana’s staking protocols over Ethereum’s staking protocols may continue to widen in the future.
From this perspective, although we cannot yet definitively say that Solana’s restaking has achieved PMF, it is clear that staking and restaking on Solana offer better business opportunities compared to those on Ethereum.
