Author: IGNAS | DEFI RESEARCH
Compiled by: TechFlow
This week, I had planned to write a blog post about emerging trends in cryptocurrency, but due to the sudden launch of Symbiotic and its deposit limit reaching almost $200 million in one day, I had to switch my focus to restaking. Emerging trends can be put on hold for the time being, but the opportunity for high-yield airdrops cannot be missed.
Currently, with Karak, we have three restaking protocols. So, what are the differences between these protocols? How should we respond?
Symbiotic's motivation
Paradigm was rumored to have approached Eigenlayer co-founder Sreeram Kannan for an investment, but Kannan chose competitor Andreessen Horowitz (a16z), which led a $100 million Series B round. Since then, Eigenlayer has grown to become the second-largest DeFi protocol with a TVL of $18.8 billion, second only to Lido's $33.5 billion. The FDV of the EIGEN token is $13.36 billion.
Considering that Eigenlayer is valued at $500 million FDV in March 2023, this is equivalent to a 25x increase in paper earnings. Paradigm was not satisfied with this and funded Symbiotic, positioning it as a direct competitor to Eigenlayer. Symbiotic raised $5.8 million in seed funding from Paradigm and cyber•Fund.
Paradigm’s rivalry with a16z is common knowledge (and a joke), but there’s a second part to this story.
Cyber Fund, Symbiotic’s second-largest investor, was founded by Lido co-founders Konstantin Lomashuk and Vasiliy Shapovalov. Coindesk reported in May that “people close to Lido see Eigenlayer’s restaking approach as a potential threat to its own dominance.”
Lido missed the trend of Liquid Restaked Tokens. In fact, stETH’s TVL has stagnated and declined by 10% over the past three months. Meanwhile, EtherFi and Renzo saw a surge in inflows, reaching $6.2 billion and $3 billion, respectively.
Restaking with LRT is particularly attractive as it offers higher yields, although most are actually points at this stage.
To strengthen Lido’s position, Lido DAO launched the “Lido Alliance”, whose primary mission is to develop a permissionless, decentralized re-staking ecosystem.
(details)
By the way, one of the strategic priorities is to reaffirm that stETH is LST, not LRT.
This is great news for us because we can get more tokens and more farming opportunities.
Just one month after initial discussions, key alliance member Mellow has launched LRT deposits on Symbiotic, supporting stETH deposits!
But let’s take a step back and discuss how Symbiotic differs from Eigenlayer before diving deeper into Mellow LRT’s unique features and farming opportunities.
Symbiotic vs Eigenlayer
Symbiotic: Permissionless and Modular
Symbiotic features a permissionless and modular design, providing more flexibility and control. Its main features include:
Multi-asset support: Symbiotic allows direct deposits of any ERC-20 token, including Lido's stETH, cbETH, etc. This makes Symbiotic more diverse than Eigenlayer, which mainly supports ETH and its derivatives.
Customizable parameters: Networks using Symbiotic can choose their collateral assets, node operators, rewards, and slashing mechanisms. This modular design enables networks to adjust their security settings to their specific needs.
Non-upgradeable core contracts: Symbiotic’s core contracts are non-upgradeable (similar to Uniswap), reducing governance risks and potential failure points. Symbiotic can continue to operate even if the team disappears.
Permissionless design: Allows any decentralized application to be integrated without approval, providing a more open and decentralized ecosystem.
Being “symbiotic” means “avoiding competition like fire, being as selfless as possible, and as non-opinionated as possible,” Misha Putiatin, co-founder and CEO of Symbiotic, told Blockworks.
Misha also told Blockworks that “Symbiotic does not compete with other market participants, so there is no native staking, rollups, or data availability products. When dApps launch, they typically need to manage their own security model. However, the permissionless, modular, and flexible Symbiotic design allows anyone to use shared security to secure their network."
Misha said: “The goal of our project is to change the narrative - you don’t have to launch locally - it’s safer and easier to launch on us, on shared security.”
In practice, this means that crypto protocols can launch native staking for their own native tokens to improve network security. For example, Ethena has partnered with Symbiotic to offer USDe cross-chain securities using staked ENA.
According to a Symbiotic blog post, Ethena is integrating Symbiotic with LayerZero’s Decentralized Validator Network (DVN) framework to bring Ethena assets like $USDe collateralized $ENA-secured cross-chain. This is the first of several parts of their infrastructure and systems that will seek to leverage collateralized $ENA.
Other use cases include cross-chain oracles, threshold networks, MEV infrastructure, interoperability, shared sorters, etc. Symbiotic was launched on June 11, and the deposit limit of stETH was reached within 24 hours.
Eigenlayer: Management and integration methods
Eigenlayer takes a more managed and integrated approach, focusing on leveraging the security of Ethereum ETH stakers to support a variety of dApps (AVS):
Single asset focus: Eigenlayer mainly supports ETH and its derivatives. This focus may limit its flexibility.
Centralized management: Eigenlayer manages the delegation of staked ETH, and node operators verify various AVS. This centralized management helps simplify operations, but it can also lead to bundling risks, making it difficult to accurately assess the risks of individual services.
Dynamic Market: Eigenlayer provides a decentralized trustless market that allows developers to launch new protocols and applications using pooled ETH security. Risk is shared by pool depositors.
Slashing and Governance: The way Eigenlayer is managed includes specific governance mechanisms for handling slashing and rewards, which may provide less flexibility.
Honestly, Eigenlayer is an extremely complex protocol, the risks and overall functionality are beyond my comprehension, and I had to aggregate criticisms from various sources in this section. One is the network fund itself. I am not biased towards any party, and I believe that the comparison between the symbiosis layer and the feature layer will be very popular among DeFi geeks.
Mellow Protocol: Modular LRT
The most eye-catching part of Symbiotic’s launch is its upper layer LRT protocol Mellow. As a member of the Lido Alliance, Mellow benefits from Lido’s marketing, integration support, and liquidity guidance.
As part of the deal, Mellow will reward Lido with 100,000,000 MLW tokens (10% of total supply), which will be locked in the Lido Alliance legal entity after the TGE. These tokens will be subject to the same vesting and cliff terms as the team tokens: a 12-month cliff after the TGE, and a 30-month vesting period starting after the cliff (edited based on feedback received).
Two other benefits are mentioned in the alliance proposal:
Mellow will help spread the geographic and technical decentralization work Lido is doing beyond Ethereum validation.
Lido node operators can launch their own composable LRTs and take control of the risk management process by choosing an AVS that suits their needs, rather than facing AVS imposed by LRTs or re-staking protocols.
The impact of partnerships will take time to show, but LDO is up 9% in 24. Interestingly, one of the four LRT caps at $42 million was reached before the Lido partnership tweet below.
Anyway, if you are familiar with Eigenlayer LRTs like Etherfi and Renzo, you will know that depositing Mellow is double the fun: you can earn both Symbiotic and Mellow points. But Mellow is not the same as Eigenlayer LRT.
What problems does Mellow solve for LRT?
The Mellow protocol allows anyone to deploy LRT, including hedge funds, staking providers (such as Lido). This means that the amount of LRT will increase significantly, potentially harming its liquidity and making its integration in DeFi protocols more complicated.
Mellow's advantages include:
Diversified risk profiles: Current LRTs typically force users to accept a uniform risk profile. Mellow allows for multiple risk adjustment models, allowing users to choose their preferred risk exposure.
Modular Infrastructure: Mellow’s modular design allows for shared security networks to request specific assets and configurations. Risk curators can create highly modified LRTs for their needs.
Smart Contract Risk: By allowing modular risk management, Mellow reduces the risk of vulnerabilities in smart contracts and shared security network logic, providing a safer environment for re-stakeholders.
Operator Centralization: Mellow decentralizes the decision-making of operator selection, preventing centralization and ensuring a balanced and decentralized operator ecosystem.
LRT Cycle Risk: Mellow’s design addresses the risk of liquidity crunch due to withdrawal closures. Current withdrawals take 24 hours.
Interestingly, Mellow specifically mentioned that they could launch LRT on top of any staking protocol like Symbiotic, Eigenlayer, Karak, or Nektar. However, I would be very surprised to see Mellow working directly with Eigenlayer.
However, I would not be surprised to see the current Eigenlayer LRT protocol partner with Symbiotic or Mellow. In fact, Coindesk reported that a source close to Renzo and Symbiotic mentioned that Renzo was already discussing integration with Symbiotic a month ago.
Finally, the cool thing about the permissionless Mellow vault is that we will most likely have LRT for DeFi tokens. Think of the ENA LRT token, which is the liquidity ENA on Symbiotic that secures the USDe bridge.
There has been little innovation in token economics during this cycle, but Symbiotic may make holding DeFi governance tokens attractive again.
DeFi Degen’s Restaking Wars Script
As of this writing, there are four LRT vaults on Mellow, managed by four unique curators, and the deposit limit is about to be reached.
The timing of the Symbiotic and Mellow LRT launches is perfect: EtherFi S2 credits ended on June 30th, Renzo S2 is also in progress, and the Swell airdrop will come soon after withdrawals are enabled.
I am almost worried about what to do with my ETH after the LRT airdrop expires. Thanks to venture capital and whale games, airdrop players will also gain a lot.
At this stage, the game is pretty simple: deposit Symbiotic to earn points, or take a bigger risk and farm directly on Mellow. Note that since Symbiotic's stETH deposit is full, you will not earn Symbiotic points, but will earn 1.5x Mellow points.
The airdrop game will probably be similar to the Eigenlayer playbook: Mellow LRT will be integrated into DeFi, and we will see leverage farming on Pendle and multiple lending protocols. But I believe Symbiotic tokens will probably be launched before EIGEN is tradable.
In an interview with Blockworks, Putiatin said the mainnet could be “something live in late summer.” Does this mean a token will be launched as well?
Stealing the restaking limelight from Eigenlayer could be a smart move, especially if the market turns bullish soon and considering Symbiotic’s aggressive partnership strategy.
There are two collaborations that stood out to me the most: The Blockless and Hyperlane. Both protocols initially partnered with Eigenlayer as AVS for shared security, but are they changing alliances?
Maybe Symbiotic is promising more support and token distribution? I need more answers!
Regardless, these re-staking wars are good for those of us speculative airdrop players as it provides more opportunities and may prompt Eigenlayer to launch a token sooner.
It’s still early days for Symbiotic but the early deposit inflows are very bullish. I’m currently farming on Symbiotic and Mellow but plan to migrate to Pendle YTs when the strategy opens.
I believe Pendle’s Symbiotic YT token expiration date will give us more insight into the Symbiotic TGE timeline.
Last: Karak
Karak is a hybrid, similar to Eigenlayer, but it calls AVS a distributed security service (DSS). Karak also launched its own Layer 2 (called K2) for risk management and sandbox testing of DSS. However, it is more like a testnet than a real L2.
Karak has attracted over $1 billion in TVL for two main reasons:
Karak supports Eigenlayer's LRT, so farmoors can earn points from Eigenlayer, LRT, and Karak at the same time.
Karak has raised more than $48 million from investors including Coinbase Ventures, Pantera Capital, and Lightspeed Ventures.
(More information for reference)
That said, Karak has yet to announce any significant partnerships, LRT protocols launched on Karak, or any exclusive DSS/AVS partners since the April announcement. Hopefully Karak can pick up the pace as Symbiotic is racing to catch up with Eigenlayer.
