Re-deposit Wars: Do we really need so many re-deposit players?

Author: Donovan Choy, Crypto Analyst; Translation: Jinse Finance xiaozou

1, Introduction

The restaking war is heating up. Challenging EigenLayer's monopoly is another new protocol supported by Lido, Symbiotic. The latest entrants have competitive advantages in protocol design and BD partnerships. Before we delve into the latest competitive dynamics in the restaking field, we need to understand what key risks exist in this field.

2、Current Issues with Re-Pledge

Today, re-pledge works like this: Bob deposits ETH/stETH into a liquidity re-pledge protocol like Ether.Fi, Renzo, or Swell, and delegates it to an EigenLayer node operator, who then ensures that one or more AVS returns part of the revenue to Bob.

There is a compounding risk in the current situation, which lies in its one-size-fits-all nature. EigenLayer node operators handle thousands of assets used to verify multiple AVS. This means that Bob has no say in the potential risk management associated with which AVS the node operator chooses.

To be sure, Bob can try to choose a "safer" node operator, but there are hundreds of operators competing with each other, they want to get your re-pledged collateral, and they are all incentivized to verify as many AVS as possible to maximize your returns.

A quick look at the node operator page on EigenLayer shows us a lot of very obvious ads like the one below.

This competitive situation can lead to a bad outcome that no one wants: each node operator verifies the AVS that they believe is absolutely reliable. When the AVS operation is interrupted and a penalty event occurs, no matter which operator Bob chooses, he will be affected.

3、Understand Mellow Finance

Mellow solves this problem (to some extent). Mellow, also known as "modular LRT", is the middleware layer of the re-pledge technology stack, providing customizable liquidity re-pledge vaults. With Mellow, anyone can become their own Ether.Fi or Renzo and build their own LRT vault. These third-party "managers" on Mellow will have full control over which re-pledge assets to accept, and users will then choose assets based on their risk preferences and pay a certain fee for it. Here is an absurd example: Alice is a DOGE fan and she is investing in DOGE for yield. She saw a vault called DOGE4LYFE on Mellow. She deposits her DOGE into this DOGE4LYFE vault, earns a re-staking yield, and she pays a small fee to the operator, gets LRT called rstDOGE, which she can then use as DeFi collateral elsewhere. This is not possible at the moment because DOGE is not on EigenLayer's whitelist. Even if EigenLayer founder Sreeram turns his sights on DOGE, the incentive misalignment problem faced by node operators mentioned earlier remains.

If all this sounds familiar, it's because similar services have already emerged in the DeFi lending space, such as Morpho, Gearbox, or (DeFi old friends from the last cycle may remember) the now-deprecated Fuse protocol developed by Rari. Take Morpho, for 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 lending pools on Aave with one-size-fits-all risks. In the upcoming V4 upgrade, Aave also plans to upgrade the protocol with separate lending pools.

4, Mellow x Symbiotic x Lido Strategy

Since Mellow is just a middleware re-pledge protocol, the assets it holds in its vault must be re-pledged somewhere. Interestingly, Mellow did not align strategically with EigenLayer, but instead chose the upcoming re-pledge protocol Symbioti, which is backed by Lido’s venture capital firm cyber•Fund and Paradigm (Paradigm also backs Lido).

Unlike EigenLayer or Karak, Symbiotic supports multi-asset deposits of any ERC-20 token, making it the most permissionless token to date. Any asset, from ETH to meme coins, can be used as re-pledge collateral to secure AVS. This could open the door to the worst possible crypto degradation: imagine a Symbiotic AVS secured by re-hypothecated DOGE collateral.

While all this is technically possible, it ignores the modular nature of the Mellow product, which allows for infinite composability in the designs of third-party vault managers. Here, the rationale for Mellow’s integration with Symbiotic becomes clear, as the assets can still be used on other rehypothecation protocols like EigenLayer or Karak.

So far, many managers have opened their own LRT vaults on Mellow. Unsurprisingly, given Lido’s close collaboration with Mellow (more on this later), most of them will take stETH as collateral.

The exception is the vault that has two Ethena accepting sUSDe and ENA. Indeed, Mellow has already accomplished an amazing feat — its first sUSDe vault is already full.

The final step in Mellow’s strategy is to participate in the recently announced “Lido Alliance,” an official association of Lido projects. Mellow benefits through Lido’s stETH direct deposit channel, which explains why it has pledged 10% (100B) of its MLW token supply to facilitate the partnership. On the other hand, Lido also benefits from this as it attempts to recapture stETH capital from liquidity re-staking competitors. Since the re-staking climate took shape in 2024, Lido’s growth has been stagnant due to liquidity being taken away by LRT competitors.

5、Market traction

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

Depositing stETH into a Mellow vault now earns four more tiers of yield in addition to the corresponding vault’s LRT tokens:

· stETH APY

· Mellow Points

· Symbiotic Points

· Restaking APY (after AVS runs on Symbiotic)

Since Symbiotic opened deposits, it has accumulated $316M TVL in less than two weeks.

· Symbiotic TVL

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

On the other hand, Mellow has a TVL of $374. Both of these are fairly early positive signs that Lido will be on to something in this regard.

· Mellow LRT TVL

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

As of June 20, four Mellow pools have been launched on Pendle:

Currently, only Mellow points are eligible to enter these funding pools before the Symbiotic cap is increased. As compensation, Mellow rewards 3x points for deposits (1.5x points if you deposit directly on Mellow). Given the extremely short expiration dates, the liquidity of these pools is also quite low, so if you try to buy YT, the slippage will be quite high. The best strategy at the moment is probably the PT fixed yield, which is a fairly high yield, with an APY of 17%-19% across all four vaults.

6, Overview of the Re-Pledge Ecosystem

The re-pledge battlefield is becoming more and more complex, let's make a brief summary. As of today, there are three major re-pledge platforms. They are ranked by TVL as EignLayer, Karak, and Symbiotic.

· The total value of locked assets on re-pledge protocols TVL

EigenLayer, Karak, and Symbiotic (including all chains) are as follows:

All three re-pledge platforms offer services to sell security to AVS. Given ETH's dominance and deep liquidity, stETH becomes an obvious choice for EigenLayer collateral. Karak has already expanded the range of re-pledge collateral from ETH LST to stablecoin and WBTC collateral. Now, Symbiotic is pushing the envelope and supporting the use of any ERC-20 collateral.

Meanwhile, LRT protocols like Ether.Fi, Swell, and Renzo saw an opportunity and began competing with Lido with their own points campaigns.

· TVL, the liquidity re-staking token

The total value of assets locked in liquidity re-staking protocols (including all chains) so far this year is as follows:

Lido has always enjoyed stETH dominance in the DeFi space, but this time it has begun to lose market share, which has flowed into LRT protocols. For Lido, the simple response may be to strategically position stETH from LST to LRT assets. But the reality is that Lido still holds stETH as LST, but will cultivate its own re-staking ecosystem while retaining stETH. To this end, Lido is strongly supporting Symbiotic and Mellow to become part of the "Lido Alliance" to provide a modular re-staking product without permission. The sales strategy is summarized as follows:

· Dear projects with tokens, don't wait for EigenLayer to whitelist your tokens, come to Symbiotic and issue your own LRT in a permissionless manner.

· Dear users, don't deposit your wstETH with LRT competitors anymore, give it to Mellow, you can get a better risk-adjusted return.

7, Conclusion

As competition in the re-staking space heats up, here are a few points worth pondering:

· How big is the demand for re-staking AVS, and do we really need so many re-staking players? As of today, only EigenLayer has live AVS. The TVL is about 5.33 million ETH, and there are about 22.6 million ETH re-staking in 13 AVS at a collateral ratio of about 4.24x.

· The main trend among re-staking platforms is to compete to integrate as many assets as possible to support re-staking. Latecomers, competitors like Karak, try to differentiate themselves from other competitors by using WBTC collateral, stablecoins, and Pendle PT assets. Symbiotic goes a step further by allowing any ERC-20 token to be used, but leaving asset management to third-party Mellow vault creators. Despite the most stringent restrictions, EigenLayer still maintains a huge lead in TVL. Moreover, the jury is still out on whether allowing non-ETH assets to be used for chain security is a wise move.

· What does this mean for LRT Protocol? To be sure, there is nothing stopping them from pursuing a similar integration with Symbiotic, and in fact Renzo has already done so. Not only is Symbiotic designed to support maximum permissionlessness, LRT Protocol has no reason to remain loyal to EigenLayer, but will hope to gain some market share in Lido's re-staking ecosystem before Mellow can gain a monopoly in the secondary market. However, is there fierce competition? As mentioned above, Lido's goal is to reaffirm its stETH dominance, and both Symbiotic and Mellow are projects backed by the liquidity staking giant. This goal fundamentally conflicts with Symbiotic eETH, ezETH, swETH considerations. It will be interesting to see how Lido makes these tradeoffs.

· From a builder’s perspective, it’s getting easier and easier to bootstrap the economic security of your own chain. EigenLaye makes this easy and convenient, but the permissionless vaults in the Mellow x Symbiotic ecosystem are taking this a step further and making it even more convenient. Major players like Ethena have announced plans to support sUSDe and ENA re-staking in Symbiotic to secure their upcoming Ethena Chain, rather than expecting EigenLayer or Karak to whitelist ENA as re-staking collateral.

· What does this mean for the Lido DAO and LDO token holders? The DAO charges a 5% fee on all stETH staking rewards, which are distributed between node operators, the DAO, and the insurance fund, so staking more ETH in Lido (rather than the LRT protocol) means more income for the DAO. However, there is no clear path for Lido to accumulate value, whether in building its own re-staking ecosystem or the LDO token itself, and LDO is still just a governance token.