The escalating competition in restaking is challenging EigenLayer’s dominant position, with support from Lido-backed new protocol Symbiotic. This article explores the current state and issues of restaking from multiple angles, questioning the necessity of numerous restaking platforms. It originates from Donovan Choy and has been compiled, translated, and rewritten by Blockchain Simplified.
The restaking war is intensifying. Challenging EigenLayer’s monopoly is Symbiotic, a new protocol supported by Lido. This newcomer brings competitive advantages in protocol design and business development collaborations. Before delving into the new competitive dynamics in restaking, understanding the critical risks within the existing system is essential.
Here’s how restaking currently operates: Bob deposits ETH/stETH into liquidity restaking protocols like Ether.Fi, Renzo, or Swell, which then delegate it to EigenLayer’s node operators. These node operators use the deposits to secure one or multiple Active Validation Systems (AVS), generating returns for Bob.
A compounded risk exists in the current system due to its one-size-fits-all nature. EigenLayer’s node operators manage assets worth millions, used to validate multiple AVS. This means Bob has no say in the risk management of the AVS chosen by the node operators.
While Bob can attempt to select a “safer” node operator, these operators compete fiercely among hundreds of others for your restaking deposits, incentivized to validate as many AVS as possible to maximize returns.
This competitive scenario can lead to an undesirable outcome: each node operator prioritizes what they deem as fail-safe AVS. When such an AVS faces compromise and undergoes slashing events, Bob is impacted regardless of the operator chosen.
Mellow partially addresses this issue. Known as “modular LRT,” Mellow acts as an intermediary layer in restaking stacks, offering customizable liquidity restaking vaults. With Mellow, anyone can become their own Ether.Fi or Renzo, initiating their LRT vaults. Third-party “curators” on Mellow have full control over which restaking assets they accept, allowing users to choose based on their risk preferences and pay fees accordingly.
Here’s a hypothetical example: Alice, a passionate DOGE enthusiast, seeks returns on her DOGE assets. She finds a vault named DOGE4LYFE on Mellow. Alice deposits her DOGE into the DOGE4LYFE vault, earns restaking returns, pays a small fee to the operator, and receives an LRT token called rstDOGE, which she can use as collateral in DeFi. Currently impossible due to EigenLayer’s restriction on whitelisting DOGE. Even if Sreeram eventually accepts DOGE, the incentive imbalance issue faced by node operators remains.
While technically feasible, this overlooks the modular nature of Mellow’s product, allowing for infinite combinations of restaking yields curated by third-party vault creators. This integration with Symbiotic becomes clear because assets remain restricted on other restaking protocols like EigenLayer or Karak.
Thus far, numerous curators have joined Mellow, launching their LRT vaults. Not surprisingly, most curators use stETH as collateral, benefiting from Lido’s deep integration with Mellow.
