The competitive landscape of restaking is heating up with the ambitious new protocol Symbiotic, supported by Lido, challenging EigenLayer’s dominant position. This newcomer offers competitive advantages in protocol design and business development partnerships. Before delving into the evolving competitive dynamics in the restaking space, it’s crucial to understand the current risks inherent in restaking systems.
Today’s restaking operations typically involve users like Bob depositing ETH/stETH into liquidity restaking protocols such as Ether.Fi, Renzo, or Swell. These protocols then delegate these assets to node operators of EigenLayer, who use them to secure one or more Active Validation Systems (AVS), generating returns for Bob.
A significant compound risk in the current setup lies in its one-size-fits-all nature. Node operators of EigenLayer manage vast assets used to validate multiple AVS, leaving Bob with no say in risk management over which AVS the operators choose.
While Bob can attempt to select a “safer” node operator, these operators compete fiercely among hundreds of others for Bob’s restaking collateral, incentivizing them to validate as many AVS as possible to maximize Bob’s returns.
This competitive environment may lead to an undesirable outcome where each node operator protects what they consider the safest AVS. When an AVS suffers a breach and undergoes slashing, Bob is affected regardless of which operator he chooses.
Mellow addresses this issue by introducing modular LRT (Liquidity Restaking Token) vaults within the restaking stack. This middleware layer enables customizable liquidity restaking vaults, allowing anyone to become their own Ether.Fi or Renzo and launch their LRT vaults. Curators on Mellow exercise full control over which restaking assets they accept, empowering users to choose based on their risk preferences and pay fees accordingly.
For instance, Alice, a fervent DOGE enthusiast, seeks returns on her DOGE assets. She spots a vault named DOGE4LYFE on Mellow, deposits her DOGE into it for restaking rewards, pays a minor fee to operators, and receives rstDOGE tokens usable as collateral in DeFi—a scenario currently impossible due to EigenLayer’s whitelist exclusion of DOGE. Even if Sreeram eventually accepts DOGE, the incentive imbalance among node operators persists.
Similar services in DeFi borrowing, like Morpho and Gearbox protocols, already offer comparable functionalities. For example, Morpho allows the creation of lending vaults with customized risk parameters, enabling users to borrow from vaults with unique risk profiles rather than from a single risk pool on Aave.
Mellow, as a middleware restaking protocol, requires assets in its vaults to undergo restaking somewhere. Interestingly, Mellow chose strategic collaboration with the upcoming Symbiotic restaking protocol instead of EigenLayer. Supported by Lido’s venture arm cyber・Fund and Paradigm (also backers of Lido), Symbiotic allows multi-asset deposits of any ERC-20 token, making it the most permissionless protocol to date. This openness could potentially open the gates to excessive speculation in cryptocurrencies—imagine a Mellow vault secured by restaking DOGE collateral to protect Symbiotic’s AVS.
Despite the technical feasibility, this overlooks the core modular nature of Mellow’s product, enabling infinite combinations of restaking rewards curated by third-party vault builders. Herein lies the rationale for Mellow’s integration with Symbiotic—while assets remain restricted on other restaking protocols like EigenLayer or Karak.
To date, numerous curators have joined Mellow, launching their LRT vaults. Notably, most curators use stETH as collateral due to deep collaboration between Lido and Mellow. Exceptions include Ethena’s vaults accepting sUSDe and ENA, with Ethena fully subscribed with its first sUSDe vault.
Another strategic component of Mellow’s plan involves its participation in the recently announced “Lido Alliance,” an official guild aligned with the Lido project. Mellow benefits by directly channeling stETH deposits from Lido, explaining its commitment to provide 10% of its MLW token supply for cooperative relationships.
Conversely, Lido benefits by reclaiming stETH capital from liquidity restaking competitors amid stagnant growth since the 2024 emergence of the restaking era. Symbiotic’s competitive edge over EigenLayer or Karak stems from its tight integration with Lido. The concept is that Lido’s node operators can release their LRT through Mellow/Symbiotic and internalize additional wstETH revenue layers within the Lido DAO ecosystem, thereby creating value returns.
Currently, depositing stETH into Mellow vaults yields four layers of returns:
1. stETH annualized yield
2. Mellow points
3. Symbiotic points
4. Annualized restaking yield when AVS is live on Symbiotic
Symbiotic, open for deposits for just two weeks, has already attracted a total locked value of $3.16 billion. Conversely, Mellow has amassed a total locked value of $374 million (TVL), both in early stages but positive signals for Lido’s trajectory to success.
As of June 20, Pendle has launched four Mellow pools:
[Insert images]
Currently, these pools only accept Mellow points until Symbiotic’s limits are raised. To compensate, Mellow triples points for deposited yields compared to a 1.5x yield direct in Mellow. Due to short expiration dates, liquidity in these pools remains low, with considerable slippage if attempting to purchase YT. Optimal strategy currently likely involves PT fixed income, offering annualized returns between 17% and 19% (highest fixed income first).
The restaking market competition is complex, summarized as follows. As of today, three main restaking platforms rank by total locked value (TVL): EigenLayer, Karak, and Symbiotic.
[Insert images]
All three platforms provide security services to AVS. Due to Ethereum’s dominance and deep liquidity, stETH remains EigenLayer’s prominent staking choice. Karak, as previously reported, has expanded its restaking collateral collection beyond ETH LSTs to stablecoins and WBTC collateral. Now, Symbiotic challenges limits by allowing any ERC-20 collateral.
Simultaneously, LRT protocols like Ether.Fi, Swell, and Renzo seize opportunities, competing for collateral against Lido.
[Insert images]
Lido holds a dominant stETH position in DeFi but is beginning to lose market share to LRT protocols. For Lido, the straightforward reaction might shift stETH from LST to LRT assets. Instead, Lido chooses to maintain stETH as LST and cultivate an internal restaking ecosystem. Thus, Lido supports Symbiotic and Mellow as part of the “Lido Alliance,” offering a permissionless, modular restaking product.
In conclusion, with intensifying competition in the restaking space, several points warrant consideration:
1. Demand for AVS and the necessity of restaking platforms
– AVS demand: Currently, only EigenLayer has active AVS. About 22.6 million ETH in 13 AVS represent approximately a 4.24x collateralization rate within a total locked value (TVL) of approximately 53.3 million ETH.
– Are multiple restaking platforms necessary? The primary trend among restaking platforms is integrating as many restaking assets as possible. EigenLayer’s late competitors like Karak differentiate by using WBTC collateral, stablecoins, and Pendle PT assets. Symbiotic goes further by allowing any ERC-20 token, but debate remains over allowing non-ETH assets for chain security.
2. Prospects for LRT protocols
– Integration with Symbiotic: Nothing stops them from similarly integrating with Symbiotic, as Renzo has already done. Designed to be as permissionless as possible, LRT protocols have no allegiance to EigenLayer, aiming to capture some market share within Lido’s restaking ecosystem, particularly before Mellow monopolizes this secondary market.
3. Impact on developers
– Launching economic security for their chains becomes easier: EigenLayer streamlines this process, but permissionless vaults on Mellow x Symbiotic stack make it even easier. Key players like Ethena have announced plans to allow sUSDe and ENA for Symbiotic restaking, safeguarding their upcoming Ethena chain instead of expecting EigenLayer or Karak to whitelist ENA.
4. Impact on LidoDAO and LDO token holders
– DAO revenue: The DAO collects a 5% fee from all stETH staking rewards, distributed among node operators, the DAO, and insurance funds. Therefore, the more ETH staked in Lido (rather than in LRT protocols), the more revenue for the DAO. However, Lido’s efforts to build its own restaking ecosystem have not clearly accumulated value for the LDO token; it remains merely a governance token.
[Insert images]
Related reports
Bankless predicts 16 popular coins: bullish or bearish for the next three months?
In-depth exploration of the “Restaking Ecosystem”: Using EigenLayer to change revenue generation
Capital boost, successive airdrops, how does the restaking LRT race become a “new gold mine”?
Coinbase Report: Restaking will become a cornerstone of Ethereum, but hides many risks…