The liquid restaking protocol may assist increase Lido’s stETH market cap.
Restaking wars are heating up as Mellow Finance’s launch this week helps the pioneering liquid staking protocol, Lido Finance, wrestle market share from rising large, EigenLayer.
Mellow Finance is the liquid restaking protocol for Symbiotic, an EigenLayer competitor, and is now part of the Lido Alliance, an initiative designed to ascertain stETH as a foundational restaking asset.
Mellow’s complete worth locked grew to $115 million simply in the future after its June 11 launch. The restaking service raised a $5.8 million seed spherical from enterprise capital agency Paradigm and the Lido founders’ funding agency Cyber.Fund.
Mellow Finance introduces a “modular infrastructure” for creating Liquid Restaking Tokens (LRTs), providing depositors a variety of permissionless vault choices. This setup permits customers to decide on their very own danger ranges when restaking.
Inside 5 hours of its launch, which was additionally on Tuesday, Symbiotic depositors reached the platform’s preliminary cap of 41,290 wstETH, or $173 million.
“Mellow enables depositors more flexibility regarding their desired level of exposure to risk while still benefiting from the liquidity of staked assets,” read the documentation.
Lido’s DeFi Breakthrough
Launched in December 2020, Lido was the breakout sensation in decentralized finance (DeFi), allowing users to stake cryptocurrency on Ethereum, while receiving a tradable token called stETH, representing their deposits.
This proved extremely popular and propelled Lido to become the largest DeFi protocol on Ethereum, currently holding $33 billion worth of deposits.
However, Lido has faced challenges with a declining market share as many users have shifted assets over to EigenLayer, a protocol that allows users to restake Ethereum’s native ETH token to help secure other networks. EigenLayer amassed $18 billion worth of deposits since opening to investors last year.
Lido’s TVL has declined 13% after peaking at $39.8 billion in March, while EigenLayer’s TVL has almost doubled in that time to $19 billion.
EigenLayer attracted users with its restaking model that allows them to use staked ETH to secure other protocols, increasing investors’ staking yields.
What Are Restaking Vaults?
Mellow Finance is building its restaking vaults using Symbiotic, which accepts any crypto asset based on Ethereum’s ERC-20 token standard.
EigenLayer only accepts certain assets like ETH, EIGEN, and select ETH derivatives. And while EigenLayer accepts deposits of Lido’s stETH, it has placed caps on the amount of stETH one can deposit.
Curators
Mellow Finance will offer customizable vaults managed by curators who distribute assets across various validated services. Curators such as Steakhouse Financial, P2P Validator, Re7 Labs, and MEV Capital will introduce vaults accepting stETH. Initially, users will earn “factors” for his or her deposits, which may doubtlessly convert to token airdrops later.
That is just like EigenLayer’s restaked factors system, which permits customers to build up factors based mostly on the amount of their staked belongings and the period for which they’re staked.
What’s Subsequent
As Symbiotic wstETH limits have been capped for now, new deposits into Mellow vaults don’t get restaked into Symbiotic. This implies whilst extra ETH will get into Mellow vaults, the quantity of Symbiotic factors shared amongst these ETH stakers stays the identical, resulting in potential dilution.
To deal with this, Mellow Finance has proposed that depositors who contributed earlier than hitting the Symbiotic restrict will obtain 1x Symbiotic and 1x Mellow factors. Those that deposited afterward will get 1.5x Mellow factors till their deposits may be restaked into Symbiotic, at which level they will even start to build up Symbiotic factors.
