Key Takeaways
- Ether.fi and EigenLayer allow ETH holders to maximise their staking returns by combining restaking and DeFi yield alternatives.
- As a result of these protocols are new, they’re greater danger.
- Buyers can begin exploring Ether.fi and EigenLayer with modest deposits (by no means stake greater than you’re keen to lose).
Consider Ethereum like a high-interest financial savings account, with a twist.
By depositing your Ether (ETH), it will get locked up for a sure interval (just like a cash market or CD). This locking, or “staking,” helps safe the Ethereum community. In return for staking your ETH, you earn staking rewards (just like how a financial institution pays curiosity).
The important thing distinction: Not like a standard financial savings account, new merchandise on Ethereum mean you can reinvest your staking rewards to earn much more ETH mechanically.
That is accomplished by means of Ether.fi and EigenLayer, two separate merchandise that work collectively to deal with your deposits, handle the safety, and mechanically reinvest your curiosity funds for you.
This strategy of reinvesting your rewards for even larger returns is a bit like taking your curiosity from a financial savings account and placing it into one other high-yield account to develop your financial savings even quicker.
But it surely does have dangers, resembling impermanent loss, potential lack of staked funds because of technical points, and sensible contract danger. Don’t stake greater than you’re keen to lose.
On this information, we’ll cowl how restaking works, utilizing EigenLayer and Ether.fi. Consider it as “staking on steroids.”
The State of Staking
Ethereum’s transfer to Proof-of-Stake (PoS) was a significant technological achievement. However some buyers nervous anew that it might lead Ethereum to develop into centralized within the fingers of some large gamers.
It is because staking is time-consuming and costly: validators should lock a minimum of 32 ETH to assist safe the community and earn staking rewards. As of this writing, which means staking over $105,000, to not point out operating advanced “validating nodes” that should be monitored 24/7.
Staking companies have been invented to unravel this downside.
Staking companies enable peculiar buyers to stake any quantity of ETH. They pool this staking capital and run the validating nodes for you, paying a lot of the rewards again to stakers, making it simpler for normal individuals to stake – and decentralizing the community, in addition.
Staking companies have confirmed wildly widespread, rising the variety of validating nodes.
As a result of that is crypto, these staking companies started issuing their very own tokens, known as liquid staking tokens (LST), which they concern as a “receipt” in your ETH on a 1:1 foundation. (Stake 1 ETH = get 1 LST.)
The most well-liked of those staking companies has been Lido (LDO), which has shortly taken over a big portion of the staking market, elevating recent considerations concerning the centralization of Ethereum.
In the meantime, ETH stakers discovered they may take their Lido “receipt” token and stake it additional, incomes yield on prime of yield or rewards on prime of rewards. (See our piece on Greatest Charges on Liquid Staking Derivatives.)
However what if this “restaking” could possibly be automated utilizing sensible contracts? Enter EigenLayer and Ether.Fi.
EigenLayer: The Infrastructure for Restaking
EigenLayer is an Ethereum-based protocol that launched the idea of restaking.
This allows you to earn extra rewards by repurposing your staked ETH to supply safety for protocols aside from Ethereum, resembling Layer-2 networks, information layers, or decentralized purposes.
In different phrases, EigenLayer is an infrastructure for pooled Ethereum safety, which lets you earn greater rewards whereas additionally enhancing the safety and effectivity of dapps.
As a bonus, EigenLayer additionally contributes to a extra decentralized community by permitting extra individuals to stake extra simply.
Since its launch in 2023, the entire worth locked (TVL) by means of EigenLayer has surged to over $12 billion:
On a facet notice, one other EigenLayer product is EigenDA, a knowledge availability layer that leverages pooled community safety. For instance, some Ethereum Layer-2 options can use EigenDA for extra environment friendly information administration to chop prices and enhance throughput.
In brief, EigenLayer is the infrastructure for restaking. Ether.Fi is the restaking product itself.
Ether.fi: The Restaking Product
Operating on prime of Eigenlayer, Ether.fi is a product that enables simple restaking: your ETH staked in Ether.fi is mechanically restaked by means of EigenLayer for greater staking rewards.
Nonetheless, whenever you stake ETH in Ether.fi, you obtain eETH (the receipt token) in return. (Stake 1 ETH = obtain 1 eETH.) And your eETH could be invested in different DeFi platforms to earn much more revenue.
Thus, Ether.fi stakers have three streams of revenue:
- Pure ETH staking;
- Further rewards generated by restaking by means of EigenLayer;
- Utilizing your eETH for additional DeFi yield.
To take part in DeFi, customers can wrap their eETH to weETH, the non-rebasing token designed for DeFi use.
Ether.fi gives an automatic DeFi technique vault known as Liquid. Customers can deposit eETH or weETH with Liquid, which does all of the behind-the-scenes work by allocating to a number of DeFi positions for max rewards.
NOTE: The extra you construct this “Jenga tower” of staking and restaking, the extra danger you tackle. Please watch this well-known clip from “The Massive Brief” for a visible:
The TVL of Ether.fi’s Stake product has surged from $100 million at first of 2024 to $3.3 billion, reflecting the rising curiosity in restaked LSTs.
Dangers and Concerns
EigenLayer and Ether.fi are each comparatively new applied sciences that haven’t been confirmed over the long run.
Through the use of EigenLayer, Ether.fi is mechanically uncovered to its dangers, which Ethereum co-founder Vitalik Buterin identified.
These dangers embody:
- Slashing: There’s a small danger of slashing. As much as 100% of your ETH could be reduce within the case of dishonest habits.
- Centralization danger: EigenLayer can develop into a systemic danger to the Ethereum community if it grows too large and is exploited.
- Yield dangers: If extra stakeholders purpose for a better yield of AVSs, the ensuing yield for precise protocol stakeholders could decline.
As with all decentralized protocol, there are additionally sensible contract dangers for Ether.fi and EigenLayer: the code may not work accurately or would possibly get hacked.
As a consequence of their novelty, EigenLayer and Ether.fi are inappropriate for informal ETH holders. However if you happen to’re tech-savvy and wish to experiment with the highest-earning alternatives, simply you’ll want to stake not more than you’re keen to lose.
Investor Takeaway
EigenLayer and Ether.fi have the potential to remodel Ethereum staking by introducing simple restaking and DeFi alternatives, thus rising the quantity you possibly can earn in your ETH.
Nonetheless, they arrive with important danger, so we urge warning for buyers who want to experiment with them.