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While liquid restaking provides more utility for staked tokens, it also comes with its own risks, like the depegging and price volatility for derivative tokens.
Ethereum liquid restaking protocols saw their total value locked (TVL) increase by almost 6,000% in 2024, as the demand for staked asset utility increased this year.
On Jan. 1, decentralized finance (DeFi) data aggregator DefiLlama showed that Ethereum’s liquid restaking TVL used to be around $284 million. After almost a year, the amount surged almost sixty times, reaching $17.26 billion on Dec. 15.
Liquid restaking total value locked in Ethereum. Source: DefiLlama
The increase in liquid restaking could be attributed to the utility of liquid restaking tokens (LRTs). These assets simplify the complexities of traditional Ether (ETH) staking and increase capital efficiency in DeFi.
Related: How Babylon attracted $3.5B to native Bitcoin staking protocol — Co-founder
What is liquid restaking?
Liquid restaking tokens (LRTs) build on the foundation of liquid staking tokens (LSTs). In liquid staking, stakers who want to maintain liquidity while participating in network security receive derivative tokens, such as stETH from Lido, representing their staked holdings.
These tokens can be used in other DeFi activities like trading, lending or yield farming, allowing holders to retain the liquidity of their staked assets.
Liquid staking tokens versus liquid restaking tokens. Source: Cointelegraph
Meanwhile, LRTs introduce a different layer, further pushing the assets’ utility. In liquid restaking, users who already staked ETH to secure Ethereum could also stake the derivative tokens that they received to participate in securing an application-specific blockchain or a layer-2 network.
While these asset types offer flexibility, they come with their own risks. This includes the depegging or price volatility of derivative tokens, potentially affecting their value. This is further amplified in LRTs due to their exposure to multiple networks.
Furthermore, a failure in one network could negatively impact restaked assets and lead to compounded losses.
Ether.fi retains over 50% market share for LRTs
Liquid restaking protocol Ether.fi controls has over 50% of the LRT market TVL. According to DefiLlama, the protocol has $9.17 billion in restaked assets.
A Node Capital report attributed the protocol’s success to its user-friendly restaking model. “This dominance is indicative of the platform’s successful simplification of complex restaking operations into a user-friendly token model that facilitates value accrual autonomously,” the report said.
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