By DONOVAN CHOY

Translation: Blockchain in Vernacular

The restaking war is heating up. Challenging EigenLayer’s monopoly is another new protocol, Symbiotic, backed by Lido. This latest entrant brings competitive advantages in protocol design and business development collaboration. Before we dive into the new competitive dynamics in the restaking space, we need to first understand the key risks in the existing system.

1. Current problems encountered by Restaking

Here’s how re-staking works today: Bob deposits ETH/stETH into a liquidity re-staking protocol like Ether.Fi, Renzo, or Swell, which then delegates it to EigenLayer’s node operators, who in turn secure one or more AVSs, generating some yield for Bob.

There is a compounding risk in the existing system, which lies in its one-size-fits-all nature. EigenLayer node operators manage thousands of assets, which are used to validate multiple AVS. This means that Bob does not have any say in the risk management of the AVS selected by the node operator.

To be sure, Bob can try to choose a “safer” node operator, but those operators are in fierce competition with hundreds of other operators, all wanting your re-staked collateral, and all incentivized to validate as many AVS as possible to maximize your returns.

This competitive situation can lead to a bad outcome that no one wants to see: each node operator will protect an AVS that they think is foolproof. When that AVS is compromised and a slashing event occurs, no matter which operator Bob chooses, he will be affected.

2. Introducing Mellow Finance

Mellow partially solves this problem. Dubbed “modular LRT,” Mellow is a middleware layer in the restaking stack that provides customizable liquidity restaking vaults. With Mellow, anyone can become their own Ether.Fi or Renzo and launch their own LRT vault. These third-party “curators” on Mellow will have full control over which restaking assets are accepted, and users can choose and pay fees based on their risk preferences.

Here is a ridiculous example: Alice is an avid DOGE enthusiast who is looking for yield on her DOGE holdings. She sees a vault on Mellow called DOGE4LYFE. She deposits her DOGE into the DOGE4LYFE vault, earns Restaking yield, pays a small fee to the operator, and gets an LRT token called rstDOGE, which she can use as collateral in DeFi. This is not possible currently because EigenLayer does not allow DOGE to be whitelisted. Even if Sreeram eventually accepts DOGE, the above incentive imbalance problem faced by node operators still exists.

If this sounds familiar, it’s because similar services are already provided in DeFi lending by protocols like Morpho, Gearbox, or Rari’s now-deprecated Fuse protocol, which DeFi veterans from the last cycle may remember. For example, Morpho allows the creation of lending vaults with customized risk parameters. This allows users to borrow assets from vaults with unique risk characteristics, rather than from a single risk pool on Aave. In the upcoming V4 upgrade, Aave also plans to upgrade the protocol with segregated lending pools.

Since Mellow is just a middleware resting protocol, the assets in its vault must be rested somewhere. Interestingly, Mellow chose to strategically partner with the upcoming resting protocol Symbiotic instead of EigenLayer. Symbiotic is backed by Lido’s venture capital arm cyber•Fund and Paradigm (the latter is also a supporter of Lido).

Unlike EigenLayer or Karak, Symbiotic allows multi-asset deposits of any ERC-20 token, making it the most permissionless protocol to date. Anything from ETH to the most extreme memecoin can be used as Restaking collateral to secure AVS. This could open the floodgates for excessive speculation in cryptocurrencies: imagine a Mellow vault consisting of Restaking DOGE collateral to secure Symbiotic's AVS.

3. Mellow x Symbiotic x Lido Strategy

While this is all technically possible, it misses the point of the modular nature of the Mellow product, which is to allow for an unlimited combination of restaking returns designed by third-party vault curators. Here, the rationale for Mellow’s integration with Symbiotic becomes clear, as on other Restaking protocols like EigenLayer or Karak, assets remain restricted.

To date, a large number of curators have joined Mellow and opened their own LRT vaults. Unsurprisingly, most curators use stETH as collateral due to Lido’s deep collaboration with Mellow (more on this later).

The exceptions are two Ethena vaults that accept sUSDe and ENA. Yes, Mellow succeeded in attracting Ethena — its first sUSDe vault is already full.

The final part of Mellow’s strategy lies in its participation in the recently announced “Lido Alliance,” an official guild aligned with the Lido project. Mellow benefits from having direct access to stETH deposits from Lido, which explains why it pledged 10% of its MLW Token supply (100B total) for the partnership. On the other hand, Lido also benefits from this as it hopes to recapture stETH capital from its liquidity Restaking competitors. Since the outbreak of Restaking in 2024, Lido’s growth has stagnated as liquidity has been siphoned away from LRT competitors.

4. Market trading volume

Symbiotic’s competitive advantage over EigenLayer or Karak comes from its tight integration with Lido. The idea is that Lido’s node operators can issue their own LRT through Mellow/Symbiotic and internalize an additional layer of wstETH yield in the Lido ecosystem, creating value returns for the Lido DAO.

Now depositing stETH into the Mellow vault can obtain the following four levels of benefits:

  • stETH annualized rate of return

  • Mellow Points

  • Symbiotic Points

  • Annualized re-staking yield when AVS is launched on Symbiotic

Symbiotic has been open for deposits for just two weeks and has already attracted $316 million in total locked value.

Mellow, on the other hand, has attracted a cumulative total value locked (TVL) of $374. It’s still early days for both of them, but it’s a positive sign that Lido is on its way to success.

As of June 20, four Mellow pools have been launched on Pendle:

Currently, these pools only accept Mellow points until the Symbiotic cap is raised. To compensate, Mellow is awarding 3x points for deposits (compared to 1.5x for deposits directly in Mellow). Given the very short expiration dates, the liquidity of these pools is also quite low, so if you try to buy YT, the slippage will be quite high. The best strategy at the moment is probably to choose PT fixed income, which has an annualized yield of 17% to 19% on these pools (sorted by highest fixed income).

5. Overview of Restaking

The competition in the restaking market has become complicated, so let’s quickly summarize it. As of today, there are three main restaking platforms. In terms of total locked value (TVL), they are EigenLayer, Karak, and Symbiotic.

All three Restaking platforms offer to sell security to AVS. Due to Ethereum’s dominance and deep liquidity, stETH becomes the obvious staking choice for EigenLayer. Karak, which we have previously reported on, has expanded the Restaking collateral collection to stablecoins and WBTC collateral beyond ETH LSTs. Now, Symbiotic is pushing the envelope and allowing the use of any ERC-20 collateral.

At the same time, LRT protocols such as Ether.Fi, Swell, and Renzo saw the opportunity and began competing with Lido for collateral through their own points campaigns.

Lido enjoyed the dominance of stETH in DeFi, but for the first time began to lose market share to the LRT protocol. For Lido, the simple response might have been to convert stETH from LST to an LRT asset, but it chose to keep stETH as LST and cultivate its own re-staking ecosystem within it. To this end, Lido is supporting Symbiotic and Mellow as part of the "Lido Alliance" to provide a permissionless, modular re-staking product. To summarize the sales philosophy:

Dear project owners, don’t wait for EigenLayer to whitelist your tokens, come to Symbiotic and launch your own LRT without permission.

Dear users, stop depositing your wstETH with LRT competitors, give it to Mellow and get better risk-adjusted returns.

6. Summary

As competition in the restaking space heats up, here are some points worth considering:

1) The need for AVS and a re-staking platform

AVS Demand: Currently, only EigenLayer has active AVS. Of the total locked value (TVL) of about 5.33 million ETH, about 22.6 million ETH is re-staked in 13 AVS, assuming a collateral ratio of about 4.24x.

Is the number of re-pledge platforms necessary: ​​The main trend among re-pledge platforms is to integrate as many re-pledge assets as possible. Late competitors to EigenLayer such as Karak differentiate themselves by using WBTC collateral, stablecoins, and Pendle PT assets. Symbiotic goes a step further by allowing any ERC-20 token but leaving asset curation to third-party Mellow vault creators. Although EigenLayer is the most restrictive, it still maintains a huge lead in TVL. Whether to allow non-ETH assets for chain security remains to be discussed.

2) The prospects of LRT protocol

Integration with Symbiotic: There is nothing stopping them from also integrating with Symbiotic, in fact Renzo has already done so. Symbiotic is designed to be as permissionless as possible, and the LRT protocol has no reason to be loyal to EigenLayer, and they will want to take some market share in the Lido re-staking ecosystem, especially before Mellow gains a monopoly in this secondary market.

Competitive Relationship: Lido’s goal is to reaffirm the dominance of stETH, and Symbiotic and Mellow are both projects backed by this liquid staking giant. This goal is fundamentally contradictory to the strategy of introducing eETH, ezETH, swETH, etc. to Symbiotic. It will be interesting to see how Lido balances this.

3) Impact on developers

It becomes easier to launch economic security for your own chain: EigenLayer makes this convenient, but permissionless vaults on the Mellow x Symbiotic stack make it even easier. Major players like Ethena have announced plans to allow sUSDe and ENA to be re-collateralized in Symbiotic to secure their upcoming Ethena chain, rather than expecting EigenLayer or Karak to whitelist ENA as re-collateral.

4) Impact on LidoDAO and LDO Token Holders

DAO income: The DAO collects 5% fees from all stETH staking rewards, which will be distributed between node operators, the DAO, and the insurance fund. Therefore, the more ETH staked in Lido (rather than in the LRT protocol), the more income the DAO will earn. However, Lido's efforts to build its own re-staking ecosystem have not brought a clear value accumulation path for LDO Token, and LDO is still just a governance token.