Stake war heats up again: Do we really need so many staking players?

Original author: Donovan Choy, encryption analyst

Original translation: Golden Finance xiaozou

1. Introduction

The restaking war is heating up. Symbiotic, another new protocol supported by Lido, is challenging EigenLayer’s monopoly. The latest entrant has a competitive advantage in protocol design and BD partnerships. Before we delve into the latest competitive dynamics in the restaking field, we need to understand the key risks in this area.

2. The current issue of re-staking

Now, the process of staking works like this: Bob deposits ETH/stETH into a liquidity staking protocol like Ether.Fi, Renzo, or Swell, and delegates it to an EigenLayer node operator, who ensures that one or more AVS return a portion of the earnings to Bob.

There is a compound risk in the current situation, in that it is of a one-size-fits-all nature. EigenLayer node operators handle thousands of assets for validating multiple AVSs. This means that Bob has no say in the potential risk management aspects related to which AVS the node operator chooses.

It is certain that Bob can try to choose a “safer” node operator, but there are hundreds of operators competing with each other, hoping to receive your re-staked collateral, and they are all incentivized to verify AVS as much as possible to maximize your earnings.

Just take a quick look at the node operator page on EigenLayer, and we can see many very obvious advertisements like the one below.

This competitive state could lead to undesirable outcomes: each node operator verifies the AVS they consider to be absolutely reliable. When the AVS is interrupted and a slashing event occurs, Bob will be affected regardless of which operator he chooses.

3. Learn about Mellow Finance

Mellow (to some extent) solved this problem. Mellow is also known as “Modular LRT”, which is the middleware of the stake technology stack.

(middleware) layer, providing customizable liquidity re-stake treasury. With Mellow, anyone can become their own Ether.Fi or Renzo and build their own LRT treasury. These third-party ‘managers’ on Mellow will have full control over which assets to accept for re-staking, and users will choose assets based on their own risk preferences and pay a certain fee for this.

Here’s an absurd example: Alice, a DOGE enthusiast, is investing in DOGE for profit. She sees a vault called DOGE 4 LYFE on Mellow, where she deposits her DOGE to earn staking rewards. She pays a small fee to the operator and receives an LRT called rstDOGE, which she can use as DeFi collateral elsewhere. This is currently impossible because DOGE is not on EigenLayer’s allowlist. Even if EigenLayer founder Sreeram turns his attention to DOGE, the incentive misalignment problem faced by the aforementioned node operators would still exist.

If all this sounds familiar, it’s because similar services have already appeared in the DeFi lending space, such as Morpho, Gearbox, or (old friends of the previous DeFi cycle may remember) the now deprecated Fuse protocol developed by Rari. Taking Morpho as an example, it allows the creation of lending vaults with custom risk parameters. This allows users to borrow assets from vaults with unique risk configurations, rather than the one-size-fits-all risk of the lending pools on Aave. In the upcoming V4 upgrade, Aave also plans to upgrade the protocol using separate lending pools.

4、Mellow x Symbiotic x Lido Strategic

Since Mellow is just a middleware re-staking protocol, its assets in the treasury must be re-staked somewhere. Interestingly, Mellow did not strategically align with EigenLayer, but chose the upcoming re-staking protocol Symbioti, which is supported by cyber•Fund under Lido’s venture capital and Paradigm (which also supports Lido).

Unlike EigenLayer or Karak, Symbiotic supports multi-asset deposits of any ERC-20 token, making it the most permissionless token to date. From ETH to meme coins, any asset can be staked as collateral to ensure the security of AVS. This could open the door to the most extreme encryption degradation: imagine a Symbiotic AVS secured by a collateral of staked DOGE.

While all of this is technically possible, it overlooks the modular nature of the Mellow product, allowing for infinite composability designed by third-party custodians. Here, the rationale for integrating Mellow with Symbiotic becomes clear, as assets can still be used on other staking protocols (such as EigenLayer or Karak).

So far, many managers have set up their own LRT vaults on Mellow. As expected, given the close collaboration between Lido and Mellow (which will be discussed in detail later), most managers will use stETH as collateral.

There are two exceptions to the Ethena treasury that accepts sUSDe and ENA. Indeed, Mellow has accomplished an amazing feat - its first sUSDe treasury is full.

The final step of Mellow’s strategy is to participate in the recently announced ‘Lido Alliance’, an official association composed of the Lido project. Mellow benefits from the direct deposit channel of stETH through Lido, which explains why it has committed to using 10% (100 B) of its MLW token supply to promote the partnership. On the other hand, Lido also benefits from it, as it tries to regain stETH capital from competitors in the liquidity re-stake competition. Since the formation of re-stake in 2024, Lido’s growth has been stagnant, as liquidity has been taken away by the LRT competitors.

5. Market Attraction

Symbiotic’s competitive advantage over EigenLayer or Karak comes from its close integration with Lido. The core idea is that Lido node operators can release their own LRT through Mellow/Symbiotic and internalize an additional wstETH revenue layer in the Lido ecosystem, returning value to the Lido DAO.

Depositing stETH into the Mellow vault now allows you to earn four layers of income in addition to the LRT token in the corresponding vault.

• stETH APY
• Mellow Points
• Symbiotic points
• Stake APY (AVS running on Symbiotic)

Since the launch of Symbiotic deposits, it has accumulated a TVL of 3.16 billion US dollars in less than two weeks.

Symbiotic TVL

The total locked value of assets on Symbiotic, priced in USD and ETH (across all chains), is as follows:

On the other hand, Mellow’s TVL is 374 dollars. Both of these are quite early signs of Favourable Information, indicating that Lido will make a difference in this respect.

Mellow LRT TVL

The total value locked (including all chains) of assets (liquidity-rewarded tokens) priced in USD and ETH on Mellow is as follows:

As of June 20th, Pendle has released four Mellow pools:

Currently, only Mellow points are eligible to enter these liquidity pools before the upper limit is raised on Symbiotic. As compensation, Mellow will reward 3 times the points for deposits (1.5 times the points if you deposit directly on Mellow). Given the extremely short maturity date, the liquidity of these pools is also quite low, so the slippage will be quite high if you try to buy YT. The current best strategy may be PT fixed income, which offers a rather high yield with an APY of 17%-19% across all four vaults.

6. Overview of the Staking Ecosystem

The staking battlefield is becoming increasingly complex, let’s make a brief summary. As of today, there are three main staking platforms. In terms of TVL ranking, they are EignLayer, Karak, and Symbiotic.

Stake Protocol TVL

The total value of locked assets on EigenLayer, Karak, and Symbiotic (including all chains) is as follows:

All three staking platforms provide services to sell security to AVS. Given the dominance and deep liquidity of ETH, stETH has become the obvious choice of collateral for EigenLayer. Karak has expanded the range of collateral from ETH and LST to stablecoins and WBTC. Now, Symbiotic is pushing the limits by supporting the use of any ERC-20 collateral.

At the same time, protocols like Ether.Fi, Swell, and Renzo have seen an opportunity and have begun to compete with Lido through their respective incentive programs.

TVL of Liquidity Re-staked Tokens

The total value of assets locked in liquidity re-staking protocols (across all chains) up to now this year is as follows:

Lido has always enjoyed a dominant position in the DeFi space with stETH, but this time it is starting to lose market share, which is flowing into the LRT protocol. For Lido, a simple response might be to strategically position stETH from LST to LRT. However, the reality is that Lido still treats stETH as LST, but it will cultivate its own staking ecosystem while retaining stETH. To this end, Lido is strongly supporting Symbiotic and Mellow to become part of the ‘Lido Alliance’, providing a permissionless modular staking product. The summary of the sales strategy is as follows:

• Dear tokenized projects, don’t wait for EigenLayer to add your token to the allowlist, come to Symbiotic and release your own LRT without permission.
• Dear user, please do not store your wstETH with LRT competitors anymore. Entrust it to Mellow and you can get better risk-adjusted returns.

7. Conclusion

As the competition in the field of stake becomes increasingly fierce, the following points are worth our consideration:

• How big is the demand for AVS staking, do we really need so many staking players? As of today, only EigenLayer has real-time AVS. The TVL is about 5.33 million ETH, with approximately 22.6 million ETH staked at an approximate collateral ratio of 4.24 in 13 AVS.
• The main trend in the re-staking platform is to integrate as many assets as possible to support re-staking. Later entrants, such as competitors like Karak, attempt to differentiate themselves from other competitors by using WBTC collateral, stablecoins, and Pendle PT assets. Symbiotic goes even further by allowing the use of any ERC-20 token but leaving asset management to the third-party Mellow Vault creator. Despite the strictest restrictions, EigenLayer still maintains a significant lead in TVL. Furthermore, there is still no consensus on whether it is wise to allow non-ETH assets for chain security.
• What does this mean for the LRT protocol? One thing is for sure, nothing can stop them from integrating with Symbiotic in a similar way, and Renzo has already done so. Not only does Symbiotic support maximum permissionless features in its design, but there’s also no reason for the LRT protocol to remain loyal to EigenLayer. And before Mellow monopolizes the secondary market, the LRT protocol hopes to gain a certain market share in Lido’s staking ecosystem. However, is there fierce competition? As mentioned above, Lido’s goal is to reaffirm its dominance with stETH, and both Symbiotic and Mellow are projects supported by this liquidity staking giant. This goal fundamentally conflicts with the considerations of Symbiotic eETH, ezETH, and swETH. It will be very interesting to see how Lido weighs the pros and cons.
• From the perspective of the builder, it is becoming easier and easier to ensure the economic security of their own chain. EigenLayer makes all of this easy and convenient, but the permissionless treasury in the Mellow x Symbiotic ecosystem is taking it a step further, making everything even more convenient. Major participants like Ethena have announced plans to support sUSDe and ENA restaking in Symbiotic to secure their upcoming Ethena Chain, instead of relying on EigenLayer or Karak to include ENA in the collateral allowlist.
• What does this mean for Lido DAO and LDO token holders? The DAO charges a 5% fee on all stETH stake rewards, which are distributed among node operators, the DAO, and the insurance fund. Therefore, staking more ETH in Lido (as opposed to the LRT protocol) means more income for the DAO. However, neither Lido’s own staking ecosystem nor the LDO token itself has a clear value accumulation path, and LDO remains just a governance token.