Liquid Restaking Tokens
Last updated
Last updated
The two restaking methods enabled by EigenLayer involve either running an Ethereum validator with withdrawal credentials set to an EigenPod (native restaking), which requires a minimum of 32 ETH, or depositing ERC20 tokens to the EigenLayer protocol, which offers greater flexibility but introduces additional smart contracting risks. Both methods result in illiquidity, where the restaked ETH is subject to a minimum withdrawal period of seven to ten days.
To address this limitation and improve the overall restaking experience, two innovative token types have emerged:
Native Liquid Restaked Tokens (nLRTs): These tokens represent staked ETH that has been natively restaked on EigenLayer. The idea behind nLRTs is to turn illiquid native restaking on EigenLayer into a liquid proposition, where the users can hold receipt tokens that earn Ethereum staking rewards and AVS rewards through a single token.
Liquid Restaked Tokens (LRTs): LRTs represent restaked ERC20 tokens on EigenLayer that accumulate AVS rewards. In simple terms, LRTs to restaking are what LSTs are to staking.
To acquire an nLRT or LRT, users deposit ETH or ERC20 tokens into a (native) liquid restaking protocol like YieldNest. In return, they receive yield-bearing restaked tokens like ynETH representing their restaked ETH or ERC20 tokens.
With nLRTs and LRTs, users can enjoy the benefits of restaking without sacrificing liquidity. Instead of waiting for the seven to ten-day withdrawal period on EigenLayer to receive back their assets, users can swap the nLRT or LRTs for ETH or ERC20 tokenson decentralized exchanges. Moreover, users can trade the nLRTs/LRTs on decentralized exchanges, lend or use them as collateral on decentralized money markets like Aave or Euler, or participate in liquidity mining programs to earn additional yield on top of the already auto-compounding yield accumulated by the tokens.
