February 20, 2024 at 12:58 GMTModified date: February 20, 2024 at 12:58 GMT
February 20, 2024 at 12:58 GMT

Liquid staking market soars, reaching $3.5B in total value locked

EigenLayer has played a pivotal role in the growth of TVL across liquid staking protocols.

Liquid staking market soars, reaching $3.5B in total value locked

Liquid staking protocols have become the talk of the town, surpassing $3.5 billion in total value locked (TVL) recently. This surge highlights the growing interest among Ethereum investors in these innovative financial instruments.

Liquid staking protocols are innovative solutions within the blockchain and cryptocurrency space that allow users to stake their digital assets, such as cryptocurrencies, while maintaining liquidity.

Protocols like Etherfi, Renzo, Kelp, Puffer, and others have witnessed a notable increase in deposits over the past month.

The surge is largely attributed to the integration of EigenLayer. This technology enables users to retain access to their funds while participating in the staking process.

Etherfi leads the pack with a TVL exceeding $1.3 billion, followed by Kelp with over $460 million, and Renzo with $346 million in user deposits.

Puffer Finance, a newcomer to the scene, has quickly ascended to become the second-largest protocol. Its TVL reached $850 million last week and hit the billion-dollar mark shortly after its launch on 1 February.

On its debut day, Puffer Finance reported a TVL of $146 million, and by 10 February, it had surpassed both Renzo and Kelp DAO. In achieving this, it positioned itself just behind market leader Etherfi, which boasts a TVL of $1.04 billion.

The role of EigenLayer in boosting TVL

EigenLayer has emerged as a transformative force in the realm of liquid staking protocols, significantly influencing the TVL within this niche. 

By enabling a novel approach to staking, EigenLayer facilitates the deposit and “restaking” of ether across various liquid staking tokens. This mechanism not only enhances the liquidity and flexibility of staked assets but also contributes to the overall security of the Ethereum network and third-party platforms.

At its core, EigenLayer’s innovation lies in its ability to repurpose staked ether for additional security purposes. By allowing users to “restake” their ether, the platform effectively leverages existing staked assets to bolster the security of multiple networks simultaneously. 

This is a significant departure from traditional staking models, where staked assets are often locked up and contribute to the security of a single network alone. 

The introduction of EigenLayer has had a direct impact on the growth of TVL across liquid staking protocols. By June 2023, when EigenLayer was launched on the Ethereum mainnet, it presented a compelling value proposition for investors and users of liquid staking tokens (LSTs). 

The ability to deposit and restake Ether through EigenLayer not only provided users with a new avenue to participate in network security but also increased the attractiveness of liquid staking protocols as a means to generate yield on their Ether holdings. 

As a result, protocols that integrated EigenLayer saw a substantial influx of deposits, contributing to the surge in TVL observed in recent months.

The total value locked in EigenLayer now exceeds $7 billion, with over $1.7 billion of $ETH restaked on the platform. 

The appeal of LRTs

Liquid restaking tokens have emerged as a popular option for Ethereum investors, especially when native restaking caps on EigenLayer are reached. 

Traditionally, staking involves locking up a certain amount of cryptocurrency to support the operation and security of a blockchain network. In return for their staked assets, participants receive rewards, typically in the form of additional cryptocurrency.

However, staked assets in a traditional staking model are often locked for a period, reducing their liquidity and limiting the ability of participants to use or trade these assets.

Liquid staking protocols address the liquidity issue by issuing synthetic assets or tokens that represent the staked assets. When users stake their cryptocurrency through a liquid staking protocol, they receive a liquid token in return. 

This token represents their staked investment and can be traded, used in decentralised finance (DeFi) applications, or used as collateral for loans, all while the underlying assets remain staked in the network.

Protocols like EtherFi, Renzo, and Kelp continue to accept ether deposits, restaking these on behalf of users and issuing a derivative token along with points from Eigen. 

This process not only secures additional rewards from the protocols themselves but also increases the chances of receiving tokens from EigenLayer through potential retroactive airdrops.

The appeal of LRT protocols is also noted in their potential for retroactive airdrops with minimal additional economic risks. By restaking an LST such as stETH on Kelp, users can accumulate points from both EigenLayer and KelpDAO. This enhances their prospects of earning rewards from both entities.