Round Table Recap - Liquid Restaking

Insights from Ankr Staking, Rocket Pool and Stake Wise.

Liquid Restaking Protocols are becoming increasingly popular, and Staking Circle is prepared to deliver the most recent updates and noteworthy perspectives from existing protocols in the space.

In our latest Space, we were joined by Ankr Staking, Rocket Pool and StakeWise for us to gain a deeper understanding of their perspectives on liquid restaking.

If you happened to miss it, here are some of the key questions discussed during the AMA.

X Spaces

How did Stakewise and Rocket Pool tackle the challenges of traditional staking, and what are the key advancements in overcoming technical, financial, and liquidity constraints?

Also, could you provide insights into the concepts of liquid restaking tokens and Eigen layer?

StakewWise: "We launched in early 2021 alongside anchor staking and Lido, as early participants in the liquid staking market and Stakewise has gained significant experience in the liquid staking space, particularly on the liquidity and DeFi integration side." "Our goal is to enable permissionless access to liquid staking, allowing competition between liquid staking protocols and solo staking so they can mint permissionlessly, allowing them to coexist in the permissionless world alongside other protocols." "Our model involves overcollateralization, where stakers don't mint 100% of their stake in liquid form. Minting is optional and can go up to 90%." "DeFi integrations involve building a robust liquidity profile, establishing liquidity pools on major DEXs like Uniswap, Curve, and Balancer." "Liquid staking allows immediate access to ETH or stablecoins without the typical nine-day queue in traditional staking and users can take it a step further by borrowing against their staked ETH, or using it for liquidity provision and other yield-generating strategies." "Liquid staking is gaining traction as a concept that provides flexibility and additional yield-generating opportunities in the crypto world."

Rocket Pool: Rocket pool set up is, you could say, maybe a little bit more straightforward than stakewise. It's been permissionless since day one, and the overall structure hasn't changed necessarily a whole lot. I know I've spent a lot of time talking about already rocket pool being permissionless, but I think it's worth reiterating, both because I think a lot of people hear staking and automatically think liquid staking. And of course with rocket pool you can liquid stake. You can physically connect computer hardware to Ethereum's proof of stake system and directly help to keep the blockchain running. The direction that Rocketpool takes as a protocol is directed by a DAO, and that is comprised of thousands of node operators all around the world. Of course, being permissionless, anyone can join. It's possible to join anonymously and help to direct the future of rocket pool. And we believe that helping to make permissionless node operation easier is essential to the survival of Ethereum. Not every staking protocol out there, and indeed most of them do not support permissionless node operation.

How does liquid restaking integrate with the DeFi ecosystem?

StakeWise: Whereas we have participation from solo nodes and essentially anyone who is capable of hosting ethereum clients, they can support Ethereum. When it comes to participating in eigen layer, at least in the first year, we actually expect a much smaller operator set, and this is going to influence the security of these protocols. It's actually configurable by the operator itself who is going to provide security to avss, how much of their capital they're planning to, let's say, commit to being slashed. And the more they commit, the more they can participate in avss that they support, as in validate, I guess, more blocks or do it more frequently. And whenever you create a token that represents this potentially 100% slashable position, I can't help but wonder how prudent it would be to have very wide integrations of lrts across Defi. But long story short is that there's going to need to be a balance between risk and reward, where people will try to optimize between committing a certain proportion of stake to slashing at the same time getting a maximum amount of yield in exchange, and also taking into account the considerations of lending protocols and other places where people would like to have LRTs as collateral.

Ankr Staking: But long story short is that there's going to need to be a balance between risk and reward, where people will try to optimize between committing a certain proportion of stake to slashing at the same time getting a maximum amount of yield in exchange, and also taking into account the considerations of lending protocols and other places where people would like to have LRTs as collateral. I also don't know which architecture the users will end up preferring to, right. One definitely can be more degen and aggressive in terms of yield. And of course that tends to be where assets tend to flow without probably actually assessing what is the risk underlying that particular option. And in theory, when you go to this, you can have potential like infinite different sets of allocations to two different avs and risk taking, right? So I'm really trying to understand. It will be very interesting to see how market participants will price the risk versus the yield.

Rocket Pool: Rocket pool, as I mentioned, is potentially, as we see, increase in staking as more ETH is staked either by node operators through, for example, rocket pool, solar staking, or stakewise v three, or through liquid staking, potentially could lead to node operators receiving less rewards and being squeezed out with larger, more centralized, more quote unquote professional entities taking more market share, and also node operators who are willing to take on more risk and receive more rewards. Also receiving more market share and some of the more, say, risk averse, security conscious node operators who maybe want to prioritize Ethereum's health to an extreme, finding it harder to justify continuing to run nodes, find it more challenging to help support Ethereum's decentralization. What we have right now is more of a testnet environment. If you participate in restaking today, you're simply sending your funds to a smart contract and the funds sit there and they do nothing. So this is not acting as collateral. They're not providing any security, there's no rewards being earned. And we don't actually know yet all of the specifics around how restaking will end up being implemented, at least at a very technical level. So that's something that I think it's important to keep in mind. And don't get me wrong, this is obviously a very interesting concept. There's great potential here, but we are unironically still very early. There's a lot of smart people working on it.

I wanted to find out is what would stop you guys from offering liquid restaking solution? ### What do you guys see as an LST protocol? Is this something you've thought about?

StakeWise: if the question is what stops us from integrating into eigen layer and somewhere under the hood and then turning our lsts into liquid to restaking tokens, then I guess technically it's not that big of a lift. But I think for everyone, it's mostly a philosophical question. How big of a departure do you make from your traditional liquid staking model in order to pursue the liquid restaking opportunity? And especially, it's kind of difficult to discuss and philosophize around this when there is very little understanding of what the yields and risks within EigenLayer are going to look like. It's a little bit early to bet the house on Eigen layer and just dive head into integrating restaking within the existing product. But we can certainly do stuff with restaking thanks to the architecture that we have with stakewise.

Ankr Staking: I think when you already have an existence and working business model, really trying to make such changes in an environment that's definitely still not clear. And a lot of things needs to be done just adds an extra risk, not only in terms of the protocol itself that needs to be developed, but also like reputational risk. So definitely we exactly share the same view(with StakeWise). We'll keep an eye on. We will try to make some integrations that would make sense for us and help out and see how it goes.

What do you guys expect for the future when we think about liquid restaking?

Is there a comparison between liquid staking and liquid restaking in terms of TVL acquisition?

Rocket Pool: it can be relatively easy to acquire TVL without even necessarily having a product, so to speak. And even though rocket pool is about the fifth largest protocol on Ethereum by TVL, it's not something that we really think about, at least for the protocol. We try to optimize on the node operator side to grow the number of node operators to help them to operate as effectively and as efficiently as possible. I think with any early trend there is a tendency for it to accrue TVL. Not necessarily an indication of how that will progress into the future, but it is interesting to see.

Ankr Staking: I think with any early trend there is a tendency for it to accrue TVL. Not necessarily an indication of how that will progress into the future, but it is interesting to see. And of course the point system is great to incentivize retail going here and there. Because just like the Internet once was really a space for freedom and decentralized and blah, blah, it also ended up in the hands of multiple big corporations, right, which I think is not the end goal here.

Conclusion:

Thank you for tuning into staking circle, everything from staking, liquid staking, restaking and liquid restaking. And I hope you all have a good week and a good 2024 and come back next week for more!