Author: IGNAS | DEFI RESEARCH
Translator: DeepTide TechFlow
This week, I had originally planned to write a blog post about emerging trends in cryptocurrencies, but due to the sudden launch of Symbiotic and its deposit cap reaching nearly $200 million in a day, I had to shift my focus to restaking. While emerging trends can be put on hold temporarily, the opportunity for high-yield airdrops cannot be missed.
Currently, with Karak included, we now have three restaking protocols. So, what sets these protocols apart? How should we approach them?
Motivation behind Symbiotic’s launch
Symbiotic vs Eigenlayer
Symbiotic: Permissionless and Modular
Eigenlayer: Management and Integration Approach
Mellow Protocol: Modular LRT
Issues Solved by Mellow LRT
DeFi Degen’s Restaking Wars Script
Lastly: Karak
It is rumored that Paradigm had contacted Eigenlayer’s co-founder Sreeram Kannan for investment, but Kannan chose the competitor Andreessen Horowitz (a16z), with a16z leading a $100 million Series B funding. 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 Eigenlayer’s valuation of $500 million FDV in March 2023, this represents a 25x increase in book profits. Paradigm was not pleased with this and thus funded Symbiotic, positioning it as a direct competitor to Eigenlayer. Symbiotic raised $5.8 million in seed funding from Paradigm and cyber•Fund.
Cyber Fund, the second-largest investor in Symbiotic, was founded by Lido’s co-founders Konstantin Lomashuk and Vasiliy Shapovalov. Coindesk reported in May that individuals closely associated with Lido believed that Eigenlayer’s restaking approach posed a potential threat to its dominance.
Lido missed the trend of Liquid Restaked Token. In fact, stETH’s TVL has stagnated and decreased by 10% in the past three months. Meanwhile, the inflows for EtherFi and Renzo surged, reaching $6.2 billion and $3 billion respectively.
Restaking with LRT is particularly attractive because it offers higher returns, although at this stage, most of it is essentially points.
To strengthen Lido’s position, Lido DAO initiated the “Lido Alliance”, whose primary task is to develop a permissionless, decentralized restaking ecosystem.
By the way, one of the strategic priorities is to reiterate that stETH is LST, not LRT.
This is good news for us as we can acquire more tokens and more farming opportunities.
Just a month after initial discussions, key alliance member Mellow launched LRT deposits on Symbiotic, supporting stETH deposits!
But let’s take a step back, discuss the differences between Symbiotic and Eigenlayer, and then delve into the unique features and farming opportunities of Mellow LRT.
Symbiotic is characterized by its permissionless and modular design, offering more flexibility and control. Its key features include:
Multi-asset support: Symbiotic allows direct deposits of any ERC-20 tokens, including Lido’s stETH, cbETH, etc. This makes Symbiotic more diverse compared to Eigenlayer, which primarily supports ETH and its derivatives.
Customizable parameters: Using Symbiotic’s network, users can choose their collateral assets, node operators, rewards, and slashing mechanisms. This modular design allows the network to adjust its security settings based on specific needs.
Immutable core contracts: Symbiotic’s core contracts are immutable (similar to Uniswap), reducing governance risks and potential failure points. Even if the team disappears, Symbiotic can continue to operate.
Permissionless design: Allows any decentralized application to integrate without approval, providing a more open and decentralized ecosystem.
Misha also told Blockworks, “Symbiotic doesn’t compete with other market participants, so there are 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 design of Symbiotic allows anyone to use shared security to protect their networks.
In practice, this means that crypto protocols can launch native staking for their native tokens to enhance network security. For example, Ethena collaborates with Symbiotic, using the staked ENA to provide cross-chain security for USDe.
According to a Symbiotic blog post, Ethena is integrating Symbiotic with LayerZero’s decentralized validator network (DVN) framework to introduce Ethena assets (such as $USDe collateralized by $ENA staked) This is the first of several components in their infrastructure and systems that seek to leverage staking $ENA.
Other use cases include cross-chain oracles, threshold networks, MEV infrastructure, interoperability, shared sorters, etc. Symbiotic was launched on June 11, and the stETH deposit cap was reached within 24 hours.
Eigenlayer adopts a more management and integration approach, focusing on utilizing the security of Ethereum ETH stakers to support various dApps (AVS):
Single-asset focus: Eigenlayer primarily supports ETH and its derivatives. This focus may limit its flexibility.
Centralized management: Eigenlayer manages staked ETH delegation, node operator verification for various AVS. This centralized management helps streamline operations but could also lead to bundling risks, making it difficult to accurately assess the risks of individual services.
Dynamic market: Eigenlayer provides a decentralized trust market, allowing developers to use pooled ETH security to launch new protocols and applications. Risks are shared by pool depositors.
Slashing and governance: Eigenlayer’s management includes specific governance mechanisms for handling slashing and rewards, which may offer less flexibility.
To be honest, Eigenlayer is an extremely complex protocol, and its risks and overall functionality are beyond my understanding. I had to summarize criticisms from various sources in this section, one of which is Cyber Fund itself. I am impartial, and I believe the comparison between Symbiotic and Eigenlayer will be very popular among DeFi geeks.
The most notable aspect of Symbiotic’s launch is its upper-layer Mellow LRT protocol. 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 the total supply) as part of the TGE, which will be locked in the Lido Alliance legal entity after TGE. “These tokens will be subject to the same vesting and cliff terms as team tokens: a 12-month cliff after TGE and a 30-month vesting period after the cliff (edited to reflect feedback received).”
The alliance proposal also mentions two additional benefits:
“Mellow will help spread awareness of Lido’s geographic and technical decentralization work beyond Ethereum validation.”
“Lido node operators can launch their composable LRT and control risk management processes by choosing AVS that suit their needs, rather than facing AVS imposed by LRT or restaking protocols.”
The impact of partnerships will take time to manifest, but LDO has grown by 9% in 24 years. Interestingly, it had already reached a $42 million cap on one of the four LRTs before the Lido collaboration tweet was released.
Regardless, if you are familiar with Eigenlayer LRTs (such as Etherfi and Renzo), you will know that depositing in Mellow will bring double the fun: you can earn points from both Symbiotic and Mellow. However, Mellow’s LRT is different from Eigenlayer LRT.
The advantages of Mellow include:
Diversified risk allocation: Current LRTs typically force users to accept a uniform risk allocation. Mellow allows multiple risk adjustment models, and users can choose their preferred risk exposure.
Modular infrastructure: Mellow’s modular design allows for specific assets and configurations to be requested in a shared security network. Risk curators can create highly customized LRTs for their needs.
Smart contract risk: By allowing modular risk management, Mellow reduces vulnerabilities in smart contracts and shared security network logic, providing a safer environment for restakers.
Decentralization of operators: Mellow decentralizes the decision-making of operator selection, preventing centralization and ensuring a balanced and decentralized operator ecosystem.
LRT liquidity risk: Mellow’s design addresses liquidity crunch risks caused by withdrawal closures. Current withdrawals require 24 hours.
Interestingly, Mellow specifically mentions that they can launch LRT on top of any staking protocol (such as Symbiotic, Eigenlayer, Karak, or Nektar). However, I would be very surprised to see a direct collaboration between Mellow and Eigenlayer.
However, if the current Eigenlayer LRT protocol collaborates with Symbiotic or Mellow, I wouldn’t be surprised either. In fact, a report from Coindesk mentioned that a source closely associated with Renzo and Symbiotic said that Renzo had been discussing integration with Symbiotic a month ago.
Finally, the cool thing about the permissionless Mellow treasury is that we are likely to have DeFi tokens’ LRT. Think of ENA LRT tokens, which are the liquidity of ENA on Symbiotic, ensuring USDe bridging.
In this cycle, there has been almost no innovation in tokenomics, but Symbiotic may make holding DeFi governance tokens attractive again.
At the time of writing this article, there are four LRT vaults on Mellow managed by four unique curators, and the deposit cap is about to be reached.
The timing of the launch of Symbiotic and Mellow LRTs is perfect: EtherFi S2 points ended on June 30, Renzo S2 is ongoing, and the Swell airdrop will come shortly after the withdrawal feature is enabled.
I am almost worried about how to handle my ETH after the LRT airdrop expires. Thanks to venture capital and whale games, airdrop players will also have a lot to gain.
At this stage, the game is quite simple: deposit in Symbiotic to earn points, or take on greater risks by directly farming on Mellow. Please note that since Symbiotic’s stETH deposits are full, you will not be able to earn Symbiotic points but will earn 1.5 times Mellow points.
The airdrop game may resemble Eigenlayer’s script: Mellow LRTs will be integrated into DeFi, and we will see leverage farms on Pendle and several lending protocols. However, I believe Symbiotic’s tokens may be launched before EIGEN becomes tradable.
In an interview with Blockworks, Putiatin mentioned that the mainnet might “launch some networks at the end of summer.” Does this mean the tokens will also be launched?
It might be a wise move to steal the limelight from Eigenlayer in the restaking game, especially in a market that is quickly becoming bullish, and considering Symbiotic’s proactive collaboration strategy.
Two collaborations that surprised me the most are The Blockless and Hyperlane. Initially, both protocols worked with Eigenlayer as shared security AVS, but are they changing alliances?
Perhaps Symbiotic promised more support and token distribution? I need more answers!
Regardless, these restaking wars are good for us speculative airdrop players, as they provide more opportunities and may prompt Eigenlayer to launch its tokens faster.
For Symbiotic, it is still in the early stages, but the early inflow of deposits looks promising. I am currently farming on Symbiotic and Mellow, but plan to move to Pendle YTs when the strategy is open.
I believe the expiration date of Pendle’s Symbiotic YT tokens will give us a deeper understanding of Symbiotic’s TGE schedule.
Karak is a hybrid, similar to Eigenlayer, but it refers to AVS as Distributed Security Services (DSS). Karak has also launched its own Layer 2 (called K2) for risk management and sandbox testing of DSS. However, it is more like a test network than a true L2.
Karak has attracted over $1 billion TVL for two main reasons:
Karak supports Eigenlayer’s LRT, allowing farmers to earn points from Eigenlayer, LRT, and Karak simultaneously.
Karak has raised over $48 million from investors like Coinbase Ventures, Pantera Capital, and Lightspeed Ventures.
Despite this, since its announcement in April, Karak has not announced any significant partnerships, launched LRT protocols on Karak, or any exclusive DSS/AVS partnerships. Hopefully, Karak will speed up its development, as Symbiotic is racing to catch up with Eigenlayer.
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