CoinDesk Report:
Author: DONOVAN CHOY; Translation: Plain Blockchain
The re-staking war is heating up. Challenging EigenLayer’s monopoly is another new protocol supported by Lido, Symbiotic. This newcomer brings competitive advantages in protocol design and business development collaboration. Before delving into the new competitive landscape of re-staking, understanding the key risks in the existing system is essential.
1. Current Issues with Re-staking
Here’s how re-staking works today: Bob deposits ETH/stETH into liquidity re-staking protocols like Ether.Fi, Renzo, or Swell, which then delegate it to EigenLayer’s node operators. These node operators use it to secure one or multiple AVS, generating some returns for Bob.
There’s a compounded risk in the current system due to its one-size-fits-all nature. EigenLayer’s node operators manage thousands of assets used to validate multiple AVS. This means Bob has no say in the risk management of AVS chosen by the node operators.
Certainly, Bob can try to select a “safer” node operator, but these operators are in fierce competition with hundreds of others, all vying for your re-staking collateral and incentivized to validate as many AVS as possible to maximize your returns.
This competitive scenario could lead to an undesirable outcome where each node operator protects what they consider foolproof AVS. When such an AVS suffers a breach and undergoes slashing events, Bob is impacted regardless of which operator he chooses.
2. Introduction of Mellow Finance
Mellow partially addresses this issue. Dubbed as “modular LRT,” Mellow is an intermediary layer in the re-staking stack, offering customizable liquidity re-staking vaults. With Mellow, anyone can become their own Ether.Fi or Renzo, initiating their own LRT vaults. Third-party “curators” on Mellow have full control over which re-staking assets they accept, allowing users to choose based on their risk preferences and paying fees accordingly.
Here’s a hypothetical example: Alice, a passionate DOGE enthusiast, seeks returns on her DOGE assets. She sees a vault named DOGE4LYFE on Mellow. She deposits her DOGE into the DOGE4LYFE vault, earns re-staking returns, pays a small fee to the operator, and receives an LRT Token called rstDOGE, which she can use as collateral in DeFi. Currently impossible, as EigenLayer does not whitelist DOGE. Even if Sreeram eventually accepts DOGE, the aforementioned incentive imbalance issue with node operators persists.
If this sounds familiar, it’s because similar services have been offered in DeFi borrowing protocols like Morpho and Gearbox or the now-defunct Fuse protocol, which DeFi veterans from previous cycles might remember. For instance, Morpho allows the creation of borrowing vaults with custom risk parameters, enabling 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 its protocol by isolating borrowing pools.
Since Mellow is merely an intermediary re-staking protocol, assets in its vaults must be re-staked somewhere. Interestingly, Mellow has chosen to strategically collaborate with the upcoming re-staking protocol Symbiotic rather than EigenLayer. Symbiotic is backed by Lido’s venture arm cyber•Fund and Paradigm (also supporters of Lido).
Unlike EigenLayer or Karak, Symbiotic allows multi-asset deposits of any ERC-20 Token, making it the most permissionless protocol to date. Any token from ETH to the most extreme memecoin can be used as re-staking collateral to protect AVS. This could open the floodgates to excessive speculation in cryptocurrencies: imagine a Mellow vault consisting of re-staking DOGE collateral to protect Symbiotic’s AVS.
3. Mellow x Symbiotic x Lido Strategy
Despite the technical feasibility, this overlooks the modular nature of Mellow products, which allows for an infinite combination of re-staking returns curated by third-party vault creators. Here, the rationale for Mellow integrating with Symbiotic becomes clear, as assets remain restricted on other re-staking protocols (such as EigenLayer or Karak).
A significant number of curators have already joined Mellow, launching their own LRT vaults. Not surprisingly, most curators use stETH as collateral due to deep cooperation between Lido and Mellow (details to follow).
The exceptions are two vaults by Ethena, accepting sUSDe and ENA. Indeed, Mellow has successfully attracted Ethena – its first sUSDe vault is fully subscribed.
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 by directly channeling stETH deposits from Lido, explaining its commitment to provide 10% of its MLW Token supply for cooperative relations. Conversely, Lido benefits as it seeks to reclaim stETH capital from liquidity re-staking competitors amid stagnant growth since the outbreak of the 2024 re-staking era.
4. Market Trading Volume
Symbiotic’s competitive edge over EigenLayer or Karak comes from its close integration with Lido. Its concept is that Lido’s node operators can release their own LRTs via Mellow/Symbiotic, internalizing additional wstETH yield layers within the Lido DAO, thus creating value returns.
Currently, depositing stETH into Mellow vaults yields the following four layers of returns:
– stETH annualized yield
– Mellow points
– Symbiotic points
– Re-staking annualized yield when AVS goes live on Symbiotic
Symbiotic has attracted $316 million in total locked value within just two weeks of open deposits.
On the other hand, Mellow has accumulated $374 million in total locked value (TVL). Both are still in their early stages, signaling positive strides for Lido.
As of June 20, Pendle has launched four Mellow pools:
Currently, these pools only accept Mellow points until the cap on Symbiotic is raised. As compensation, Mellow triples the points rewarded for deposits (compared to 1.5x for direct Mellow deposits). Given their short maturity, liquidity in these pools is relatively low, resulting in potentially high slippage if you try to buy YT. Currently, the optimal strategy may be to opt for PT fixed returns, with annualized yields ranging from 17% to 19% (sorted by highest fixed returns).
5. Overview of the Re-staking Sector
The re-staking market competition is becoming complex; let’s summarize quickly. As of today, there are three main re-staking platforms ranked by total locked value (TVL): EigenLayer, Karak, and Symbiotic.