Taking Lido and Solayer as examples, exploring the differences in the staking business models of Ethereum and Solana.

Written by: Lawrence Lee

Recently, the restaking project Solayer on the Solana chain has secured two rounds of financing, including a $12 million lead investment from Polychain and funding from Binance Labs. This has made Solayer one of the few highlights in the DeFi space, with its TVL continuously rising, currently exceeding Orca and ranking twelfth on the Solana chain.

The staking track, as a native sub-track of cryptocurrency, is also the track with the largest TVL, but its representative tokens LDO, EIGEN, ETHFI, etc. have performed poorly in this cycle. Aside from the factors related to the Ethereum network, are there other reasons?

• How competitive are the staking and restaking protocols around user staking behavior in the entire staking ecosystem?
• What is the difference between Solayer's restaking and Eigenlayer's restaking?
• Is Solayer's restaking a good business?

This article will attempt to answer these questions. We will start with the staking and restaking of the Ethereum network.

The Competitive Landscape and Development Pattern of Liquid Staking, Restaking, and Liquid Restaking on the Ethereum Network

This section will mainly analyze the following projects:

The leading liquid staking project Lido, the leading restaking project Eigenlayer, and the leading liquid restaking project Etherfi on the Ethereum network.

Lido's business logic and revenue composition

The business logic of Lido is summarized as follows:

Due to Ethereum's commitment to decentralization, the PoS mechanism of ETH soft limits the staking cap for single nodes, allowing a single node to deploy a maximum of 32 ETH to achieve higher capital efficiency. At the same time, staking has high hardware, network, and knowledge requirements, making it challenging for average users to participate in ETH staking. Against this backdrop, Lido has greatly promoted the concept of LST. Although the liquidity advantage of LST has been weakened after the Shapella upgrade opened withdrawals, the advantages of LST in terms of capital efficiency and composability remain solid, forming the basic business logic of LST protocols represented by Lido. In the liquid staking projects, Lido's market share is close to 90%, leading the market.

The revenue of the Lido protocol mainly comes from two parts: consensus layer revenue and execution layer revenue. Consensus layer revenue refers to the PoS issuance rewards of the Ethereum network, which is relatively fixed; execution layer revenue includes the priority fees paid by users and MEV, which varies significantly with the on-chain activity.

The business logic and revenue structure of Eigenlayer

The concept of Restaking was proposed by Eigenlayer last year, becoming a rare new narrative in the recent DeFi sector and even the entire market, giving birth to a series of projects with an FDV exceeding 1 billion USD at launch, including EIGEN, ETHFI, REZ, and PENDLE, as well as several yet-to-be-launched restaking projects such as Babylon, Symbiotic, and Solayer, which will be discussed below. The market's enthusiasm is evident.

Eigenlayer's Restaking is defined as: users who have staked ETH can restake their already staked ETH on Eigenlayer to earn additional rewards (, hence it is called "Re"Staking. The service provided by Eigenlayer is called AVS ) Actively Validated Services (, which can provide services for various protocols that require security, including sidechains, DA layers, virtual machines, oracles, bridges, threshold encryption schemes, trusted execution environments, etc. EigenDA is a typical representative of the services using Eigenlayer AVS.

The business logic of Eigenlayer is relatively simple. On the supply side, it raises assets from ETH stakers and pays fees; on the demand side, protocols with AVS needs pay to use its services. Eigenlayer acts as a "protocol security market" to facilitate this and earn certain fees.

![Discussing the differences in the staking business models of Ethereum and Solana using Lido and Solayer as examples])https://img-cdn.gateio.im/webp-social/moments-3f2961b0f71005b3bcae0b743b9c4e14.webp(

Currently, the only real returns from all restaking projects are the tokens ) or points ( related to the protocols. We still cannot be sure if restaking has achieved PMF: from the supply side, everyone likes the extra returns brought by restaking; but the demand side remains a mystery: are there really protocols that will purchase protocol economic security services? If so, how many?

From the target users of the tokens issued by Eigenlayer: Oracle ) LINK, PYTH (, Bridge ) AXL, ZRO (, DA ) TIA, AVAIL (, the security maintenance of the protocol by staking tokens is the core use case of their tokens. Choosing to purchase security services from Eigenlayer would greatly undermine the rationality of issuing their tokens. Even Eigenlayer itself, when explaining the EIGEN token, uses abstract and obscure language to express the viewpoint that "using EIGEN to maintain protocol security" is the main use case.

) Liquid restaking ( Etherfi )'s survival strategy

Eigenlayer supports two ways to participate in restaking: using LST and native restaking. Participating in Eigenlayer Restaking with LST is relatively simple. Users can deposit ETH into the LST protocol to obtain LST and then deposit LST into Eigenlayer. However, the LST pool has a long-term limit. Users who wish to participate in restaking during the limit period need to perform native restaking as follows:

• Users must first complete the entire process of staking on the Ethereum network by themselves, including preparing funds, configuring execution layer and consensus layer clients, and setting up withdrawal credentials.
• Users create a contract account named Eigenpod on Eigenlayer.
• Users will set the withdrawal private key of the Ethereum staking node to the Eigenpod contract account.

It can be seen that Eigenlayer's Restaking is a relatively standard "re" staking. Whether users deposit other LSTs into Eigenlayer or use native restaking, Eigenlayer does not directly "touch" the ETH staked by users (, and Eigenlayer does not issue any LRTs ). The native restaking process is a "complicated version" of ETH native staking, which means similar financial, hardware, network, and knowledge thresholds.

Therefore, projects like Etherfi quickly provide Liquid Restaking Tokens ### LRTs ( to solve this problem. The operation process of Etherfi's eETH is as follows:

• Users deposit ETH into Etherfi, and Etherfi issues eETH to users.
• Etherfi will stake the received ETH to obtain the basic yield from ETH staking;
• At the same time, they set the withdrawal private key of the node to the Eigenpod contract account according to Eigenlayer's native restaking process, thereby obtaining the restaking rewards from Eigenlayer ) as well as $EIGEN and $ETHFI(.

![Taking Lido and Solayer as examples, let's talk about the differences in the staking business models of Ethereum and Solana])https://img-cdn.gateio.im/webp-social/moments-395ceb9586556940a6f17487f86cf18f.webp(

Clearly, the services provided by Etherfi are the optimal solution for users holding ETH who wish to earn returns: on one hand, eETH is easy to operate and also has liquidity, providing an experience similar to Lido's stETH; on the other hand, users who deposit ETH into Etherfi's eETH pool can earn: about 3% basic ETH staking rewards, possible AVS rewards from Eigenlayer, Eigenlayer's token incentives ) points (, and Etherfi's token incentives ) points (.

eETH accounts for 90% of Etherfi's TVL, contributing over $6 billion in TVL at its peak and a maximum FDV of $8 billion, making Etherfi the fourth largest staking entity in just six months.

The long-term business logic of the LRT protocol lies in helping users participate in staking and restaking in a simpler way, thus achieving higher returns. Since it does not generate any returns ) other than its own token (, the overall business logic of the LRT protocol is more similar to a specific yield aggregator for Ether. A careful analysis will reveal that its business logic depends on the following two premises:

1. Lido cannot provide liquid restaking services. If Lido is willing to "emulate" its stETH with eETH, Etherfi will struggle to match its long-term brand advantage, security backing, and liquidity advantage.
2. Eigenlayer cannot provide liquid staking services. If Eigenlayer is willing to directly accept users' ETH for staking, it will greatly undermine Etherfi's value proposition.

From a purely business logic perspective, as a leader in liquid staking, Lido provides users with liquid restaking services to offer a broader range of income sources, while Eigenlayer directly absorbs user funds, making staking & restaking more convenient and completely feasible. So why doesn't Lido do liquid restaking, and why doesn't Eigenlayer do liquid staking?

The author believes that this is determined by the special circumstances of Ethereum. In May 2023, when Eigenlayer had just completed a new round of $50 million financing, which sparked numerous discussions in the market, Vitalik specifically wrote an article titled "Don't overload Ethereum's consensus" ), emphasizing in detail his views on how Ethereum's consensus should be reused (, that is, "how should we restake" ).

In terms of Lido, due to its long-term dominance accounting for about 30% of Ethereum's staking proportion, there has been a growing voice within the Ethereum Foundation to impose restrictions on it. Vitalik has also personally written several times discussing the issue of staking centralization, which has forced Lido to prioritize "alignment with Ethereum" as its business focus. Not only has it gradually shut down all businesses on other chains, including Solana, but its de facto leader Hasu published an article in May this year, confirming the abandonment of the possibility of entering the restaking business, limiting Lido's operations to staking. Instead, it is responding to competition for its market share from LRT protocols like Eigenlayer and Etherfi by investing in and supporting the restaking protocol Symbiotic and establishing the Lido Alliance.

On the Eigenlayer front, Ethereum Foundation researchers Justin Drake and Dankrad Feist were hired early on as consultants by Eigenlayer. Dankrad Feist stated that his main purpose for joining was to align "Eigenlayer with Ethereum," which may also be the reason why the native restaking process of Eigenlayer significantly contradicts user experience.

In a sense, the market space of Etherfi is brought about by the "distrust" that the Ethereum Foundation has towards Lido and Eigenlayer.

Ethereum stake ecosystem protocol analysis

Combining Lido and Eigenlayer, we can see that on the current PoS chains, regarding staking behavior, apart from the token incentives from related parties, there are a total of three sources of long-term收益:

1. PoS underlying returns, the native tokens paid for maintaining network consensus in the PoS network. This part of the yield mainly depends on the chain's inflation plan, such as Ethereum's inflation plan being linked to the stake ratio; the higher the stake ratio, the slower the inflation rate.
2. Transaction sorting revenue, the fees that nodes can obtain during the transaction packing and sorting process, including the priority fee given by users (priority fee), as well as the MEV revenue obtained during the transaction packing and sorting process, etc. This part of the yield mainly depends on the activity level of the chain.
3. Staking asset rental income involves lending users' staked assets to other protocols in need, thereby earning fees paid by these protocols. This portion of the income depends on how many protocols with AVS demand are willing to pay fees to secure the protocol.

On the Ethereum network, there are currently three types of protocols surrounding staking.

• Liquid staking protocols represented by Lido and Rocket Pool. They can only obtain the aforementioned types 1 and 2 of returns. Of course, users can hold their LST to participate in Restaking, but as protocols, they can only take a cut from the aforementioned 1 and 2.
• Restaking protocols represented by Eigenlayer and Symbiotic. Such protocols can only obtain the third type of yield mentioned above.
• Etherfi and Puffer are representative liquid restaking protocols. They are theoretically able to obtain all three types of yields mentioned above, but they are more like "LSTs that aggregate restaking yields."

Currently, the underlying yield for ETH PoS is around 2.8% annually, which gradually decreases as the staking ratio of ETH increases.

The transaction ordering yield has significantly decreased since the launch of EIP-4844, recently around 0.5% over the past six months.

The base for the rental income of staked assets is still too small to calculate an annualized return, relying more on EIGEN and the token incentives from the associated LRT protocol to make this portion of the incentives significant.

For the LST protocol, its revenue base is the staked amount * staking yield. The amount of ETH staked is close to 30%, and although this figure is still significantly lower than other PoS public chains, it reflects the decentralization efforts of the Ethereum Foundation.