Ethereum restaking technologies are becoming increasingly complex and confusing. Since it’s one of the trending narratives, let’s break it down to understand the differences between the layers and compare the technologies.
Ethereum Native Staking
The first layer is Ethereum native staking. To become a staking validator, you need 32 ETH, a dedicated computer and a strong internet connection. Unlike Proof of Work mining (bitcoin), The hardware does not have to be powerful. The security is guaranteed by the staked 32 ETH. The validator will run specific software and be penalized for downtimes and malicious behavior.
Pooled Staking
If you don’t have 32 ETH, you have the option to delegate your ETH to a trusted validator. The validator will distribute the rewards and retain a commission. Typically, you will need to manually claim your rewards. Your tokens still belong to you since they are locked in a smart contract, and only you can initiate the withdrawal. However, you will need to trust the validator on multiple levels:
You need to trust that the validator’s smart contract is free of bugs and has undergone audits.
You must ensure that the validator will not experience downtime, as your ETH is also at risk of being slashed.
It’s important to note that it usually takes a few days for your tokens to be available after unlocking them.
Liquid Staking (LST)
Liquid staking is an advanced form of pooled staking. Instead of your tokens being locked, they are sent to a common pool within the smart contract. You receive a liquid version of ETH (LST token, for example, eeth), representing your share in the pool. You can unstake at any time by sending your LST back to the smart contract and receiving your original ETH in return. There is a short unlocking period, but if you don’t want to wait, you can swap your LST for ETH on a DEX. The main advantage is that your tokens, although staked, remain liquid. You can reuse them in DEFI.
A commission of the rewards is kept by the protocol, and the rest is sent to the common pool. This means you don’t have to claim your reward and pay network fees; the rewards accrue directly in the value of your LST. Over time, the value of 1 LST becomes greater than 1 ETH. Most LSTs are available on layer 2 networks, which helps you save on network fees.
Mantle Eth: They have a new campaign going on in 3 days!
Restaking (LRT):
Restaking involves reusing the Ethereum validator infrastructure and resources to simultaneously secure new networks. Validators use custom software to secure multiple networks, earning additional yield using the same hardware and power. New decentralized blockchains seeking a stable and secure network for their proof of stake needs can utilize this service for a modest fee, as opposed to establishing their own network of validators from scratch. So we can view restaking as a shared security layer.
By restaking your ETH, you receive a token in return (Liquid restaked token – LRT) and earn additional yield from the new protocols in addition to your native Ethereum restaking. Most LST providers automatically restake your initial staked ETH, allowing you to benefit from restaking advantages. LST providers may collaborate with various restaking providers to optimize your yields.
Top LRT platforms:
EigenLayer Eigenlayer is the first restaking protocol. For now, it only supports the Ethereum mainnet and allows you to restake ETH, most established LSTs as well as its governance token EIGEN.
Symbiotic: Symbiotic is a direct competitor to Eigenlayer. It accepts different tokens as a collateral and offers networks seeking security the choice of different vaults, each vault having its own security strategy. Mellow finance partnered with Lido to create vaults on symbiotic to compete directly with Eigenlayer. If you want to participage in Symbiotic airdrop, you can check Ether.fi’s super symbiotic vault.
Karak is an emerging competitor with strong backing. It supports many chains including Layer2s and a full basket of tokens. You can use the following referal codes (absd6, Egi8A, XNC6A, PXmRT)
Mitosis
Mitosis is neither an LST nor an LRT. This may be confusing because when you deposit your LST (Etherfi eETH), you receive miweETH in return (Mitosis LST). However, Mitosis will not use your LST for restaking (security layer) purposes. Instead, Mitosis functions as a liquidity layer (Ecosystem-owned liquidity). It acts as a vault and seeks out opportunities in DEFI to maximize profits. With substantial liquidity, it can access custom deals that regular users cannot. Additionally, users can participate in governance to vote on future proposals for strategies.
Zircuit
We will talk briefly about Zircuit since it might be confused as and LRT. Zircuit in fact is a Layer2 solution (AI based) and when you restake your LST with Zircuit, it’s for the purpose of securint the Zircuit network.
Risks
Projects are evolving rapidly, with new concepts emerging daily. Protocols are teaming up to stay ahead of the curve and all this might be confusing for the average user. It’s important to consider the risks associated with each project before getting involved. The risk is very real – at the end of the day, you are giving up your ETH for some LST which is nothing but an ERC20 “pegged” to ETH based mostly on trust. While you can unstake and receive your original ETH back, there’s a possibility of a smart contract bug locking your deposit or the value of LST decreasing on the secondary market for various reasons. So if you use your LST in DEFI you might be at risk of liquidation. A lot can go wrong, so conducting thorough research is crucial.
So you missed ZKsync’s airdrop although you made sure to check all the boxes. You bridged from Ethereum’s main net, kept a minimum balance of .005 ETH, interacted with many protocols. You ensured to use paymaster, paid some network fees and got nothing. Without getting too technical, the main criteria for ZKSync was Time Weighted Average Balance. In short what mattered the most is how much you bridged and how long you kept it there. Sounds easy, but who would have guessed! Bridging an extra 100$ and keeping it a a liquidity pool could have made all the difference. Most farmers are discouraged and want to quit crypto farming altogether. This is one of the risks of farming, we put a lot of effort and money with no guarantees in return. Each project is free to choose how to manage its airdrop and we must be ready for everything.
Our option is to find the next project which might have a better distribution and is more promising. Let’s have a look at the upcoming opportunities that are in line.
Zksync ecosystem
Before removing your liquidity from zksync, double check if you have some points in in the ecosystem’s dapps. It might be worth continuing to farm these projects as some of them like Syncswap promised to distribute part (or all) of their ZK token allocation back to their communities.
Zyfi has an active campaign where you can earn points by doing basic activities, like swapping using paymaster and. You can also earn points by interacting with different protocols. It’s easy to track your progress, however there’s no leaderboard so it’s hard to estimate how you’re doing compared to others. Make sure not to push a lot of “spam” transactions and do your own research before using such protocols, the risks are not negligible.
You can also check KZ. KZ is a meme coin that rewards all farmers of zksync that did not qualify for the airdrop. While it’s hard to assess its future value, you can at least see if you qualify for some points already. It is also backed by major players.
Scroll & Linea
Scroll and Linea both have active campaigns that are competing directly with each others. Their goal is to attract the most liquidity to their ecosystem. On Linea, you can earn liquidity experience points LXPL by depositing selected assets on specific platforms. It’s not clear how the LXPL compares with LXP, the basic experience points that you were able to earn in linea park. You can track your progress and compare your metrics with others on a dashboard provided by Openblock. As of today, you can still farm Linea. However, you should be aware that LXPL points will decrease as the campaign advances and it will end when the TVL reaches 3b.
Scroll has a similar program where you earn “sessions” if you provide specific assets. You can track your sessions here. For now, you can earn sessions just by holding assets. Later on, you can earn sessions by providing liquidity and it will be retroactive. It’s important to note that you do not earn sessions anymore for transactions fees, so pushing transactions will not earn you points.
While both projects are comparable to zksync, make sure it’s not too late before jumping in.
Taiko
Taiko’s initial airdrop was somewhat similar to Zksync. A lot of farmers were excluded although they made sure to transact on all the test nets (there were many!) and participated in Galxe quests. However, only the top 300k wallets received an airdrop.
At first, Taiko dismissed the Galxe quests as being simply for educational purposes. However for season 2, they decided to give users retroactive points retroactively for previous Galxe quests. Season 2 is much more structured that season 1 where you had to use many Testnets, never sure how many transactions you should push. In season 2 you can track your points, check the leaderboard and claim your Galxe points.
If you decide to remove your assets from Zksync to Taiko, you can optimize each transaction to qualify for many airdrops at the same time. By using a combination of 0xastra and orbitrer.finance, you can earn points on 0xastra, orbitrer, taiko and KZ depending on the route.
0xastra is a new GameFi experience powered by Orbitrer. You can earn points and complete quests interactively by bridging assets. If you ever used orbitrer, you can claim points on 0xastra retroactively, so it’s a good idea to check them out.
As usual, always do an extensive research before using any projects.
In this article, we will go over the concepts of liquidity layer and explore what differentiates Elixir.
Price discovery in liquidity pools
Decentralized exchanges use an automated market maker (AMM) model to facilitate trades. Instead of relying on order books, users trade against liquidity pools that contain reserves of various tokens. These pools are automated by smart contracts, adjusting token prices based on supply and demand.
For pools with low liquidity, this can be problematic since a large trade can affect the supply and demand metric of that specific pool, while the price of that token remains stable on the overall market. This phenomenon is known as “slippage”. Slippage occurs when a trade is executed for a larger size than the liquidity available in the pool. In such cases, the price of the token can deviate from the market price as the trade absorbs the available liquidity in the pool. So a token price can vary from a pool to another and it creates arbitrage opportunities. Traders monitor different pool and can buy low on a platform and sell high on another, which will stabilize the price across the platforms.
Prevention mechanisms
Decentralized exchanges such as Uniswap implement a constant product market maker mechanism. This ensures that the tokens pair quantities in a liquidity pool stays consistent. Consequently, when the price of one token rises from increased demand, its pool quantity decreases while the other token’s quantity rises. This regulates the price automatically. Other mechanisms include offering incentives for providing liquidity, multiple pools for the same pairs and advanced trading features like limit orders.
While these methods assist in reducing the impact of slippage to a certain degree, decentralized exchanges still face some challenges in offering liquidity and price stability compared to centralized exchanges. Traders and liquidity providers must assess these aspects before engaging in trading and providing liquidity on DEXes.
Aggregation Platforms
Various platforms like 1inch consolidate liquidity from multiple DEXes and liquidity pools, enabling traders to tap into increased liquidity and potentially reduce slippage by dividing orders among various providers.
While these platforms helps users automatically find the best prices the basic problem remains low liquidity.
Elixir liquidity layer
Elixir is a DeFi protocol that specializes in offering an infrastructure for liquidity provision and management. What differentiates Elixir from other liquidity layers such as Uniswap is its dynamic liquidity provision model. Elixir focuses on efficiency and optimization. The protocol dynamically adjusts rewards based on market conditions and liquidity needs, incentivizing liquidity provision where it’s most needed. By dynamically adjusting rewards and liquidity allocations, the protocol aims to maximize liquidity utilization and improve overall market efficiency. Elixir is natively integrated with many leading decentralized exchanges and orderbook exchanges.
Currently, Elixir have an airdrop program where you earn potions for providing liquidity. You can provide liquidity on ethereum mainnet or on arbitrum/SUI by using their native integration with dexes.
Here’s the documentation, make sure to understand all the risks included in supplying liquidity as many layers of smart contracts are involved.
The first generation of defi applications allows users to swap various tokens without the need for traditional intermediaries like exchanges. It enables users to trade tokens directly from their cryptocurrency wallets through smart contracts. Users can become liquidity providers by depositing pairs of tokens into liquidity pools. In return, they earn fees from trades.
This is an efficient way for users to earn a yield on assets they already own, however there’s the risk of impermanent loss. If a token price drops significantly , the liquidity provider ends up holding the asset with the least value. Most of the defi protocols now lets the users specify the price ranges they are comfortable with. If these prices are exceeded, the user exits the pool automatically. While this helps protect from impermanent loss, it takes more management and monitoring. When a users exits the pool automatically, he stops earning yields. The users have a choice to enter managed pools where a 3rd party would rebalance and manage the pool for a small fee.
Pool managing tools
New tools like Aperture helps users to manage pools from different providers. It offers an “intent” infrastructure where users declare their goals and the platform executes them. It offers automatic rebalancing strategies, automatic fee compounding and much more. There is an airdrop campaign ongoing where you can earn points while interacting with the protocol. We recommend doing an extensive research before using the platform. You need to understand the smart contract risks associated and understand how the “position permit” signatures work. Here’s an example of a rebalancing.
Demex is a new generation decentralized exchange designed for trading complex financial instruments and derivatives across several blockchains. Anyone can be a market maker by contributing liquidity and making money from trading fees. It offers a wide range of features including trading derivatives, lending or borrowing tokens, minting stablecoins and providing liquidity.
The fact that it is a decentralized exchange means there is not 3rd party involved and no custodial. Everything is managed by smart contracts and code.
Risks
While trading cryptocurrencies comes already with a lot of risk because of volatility, trading on a dex adds a smart contract malfunction of hack risk. If something happens no one is liable. So it’s very important to understand the risks and do your own research before using such technologies.
For example, when you supply your favorite coin to a lending pool, users have to deposit a collateral to be able to borrow it. Usually users have to provide more collateral than what they borrow, but they could do so with many different coins. Now let’s say one of the coins on the collateral side looses all its value (let’s say LUNA for example). For sure the lender prefers to get liquidated rather than paying back the loan and returning your favorite coin. So you are left with worthless coins.
As decentralized exchanges get more sophisticated they try to put some guards in place, however it’s still too early for these safety measures to be bulletproof.
That being said, let’s review how you can lend your assets using Nitron on Demex:
We will be using keplr wallet, which is a great wallet mostly for the COSMOS ecosystem.
The first step is to connect to demex and create your account. Once this is completed, you can click on “Nitron” and search for the coin you wish to lend:
Once you find your coin, click on “lend”. In this example we clicked on stTIA. If you don’t have stTIA on Demex, you will have to deposit some from your wallet. Click on “Deposit”
Transfering your tokens
On the next screen, you have to choose the network that has your coins and the balance you wish to transfer to Demex:
Once you choose the amount to transfer and click on Deposit, you will have to accept the transaction in your wallet. This will trigger and IBC transaction and you will have to pay for the transaction fee with the coin of your chain. In our example, the fees have to be paid using STRIDE coin. The IBC transaction will move the coins from their chain of origin (Stride) to the Demex chain (Carbon).
It is important to note that once your coins are transferred, you might not see them anymore in your wallet, unless your wallet supports displaying your assets that are on Demex/Carbon.
Complete the transaction
Once completed you go back to the previous step and you can see your coins available to lend:
You can choose how much to lend and whether you want all the amount to be available as collateral or not. This means the amount you wish to make available as collateral for future borrowing.
You will have to confirm the transactions in your wallet. Note that the transaction fee is paid in SWTH, which is the coin used for the Carbon chain.
Once completed, you can start borrowing against the collateral portion:
You can always increase or decrease the amount of the collateral later on:
Borrowing
To borrow some funds, find the coin you wish to borrow and click on borrow:
In this example, we are borrowing milkTia:
We can borrow up to 6.59 in this example, however that puts us at risk of liquidation. Always check your Health Factor and make sure it’s in a good position. You have to verify it daily and verify the interest rate as it can vary too. A spike in the interest rate can get you liquidated.
In this example, since the provided collateral and borrowed asset are all liquid TIA, we know that there won’t be a lot of price fluctuation. However if your supplied assets value go down while the borrowed asset goes up, you will need to rebalance.
Again, it’s not financial advice, you should do your extensive research before deciding to use these features.
Here’s the result of the borrowing transaction:
The Nitron dashboard is nicely done, we can see all the information easily:
We have our total asset, health factor, net APY and the “return” button very accessible.
The question now is why would we borrow milkTIA or stTIA if we already have some? This strategy applied at scale will increase our holdings and could help us farm the borrowed coin’s airdrop. It depends whether they consider the net balance or total balance for the airdrop. There are no guarantees.
We can also use the borrowed asset to lend it back, which will improve our health:
Don’t forget that by using Demex, you could be eligible for its future airdrop.
MerchantMoe is developed by the same team as TraderJoe, the popular dex on Avalanche. It has a similar UI and gives us many options between swapping, staking and farming:
It’s very straightforward to SWAP on the platform, here’s an example of swapping USDC to JOE, the utility token of traderJOE:
Don’t rely on the transaction fees that appear in metamask:
The fees were higher once completed. Almost 0.18 to Approve Spend and 0.18 to swap.
Moe also offers you the possibility of farming with many available pools.
There’s also a bridge to transfer your JOE tokens between the different chains (Arbitrum, Mantle, Avalanche and BNB). However it should be expensive to use.
You can check Butter, another leading platform on Mantle.
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