SevenX Ventures: Restaking is poised for action, how will Renzo win the LRT War?

Author: SevenX Ventures

Basic Information

One-sentence Introduction

Renzo is the LRT (Liquid Restaking Token) of the Eigenlayer ecosystem, providing higher yields than staking native ETH and unlocking liquidity for restaking through node services and risk management.

How It Works

• Users deposit LST (such as stETH, rETH, and other liquid staking tokens) or ETH to receive the corresponding amount of ezETH.
• Renzo's smart contracts allocate the deposited LST/ETH to AVS and node operators selected through risk analysis and DAO.
• Users can earn rewards for staking native ETH, Eigenlayer points, and ezPoints rewards. In the future, ezETH can also be used in more financial scenarios.
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• Data Performance

As of January 9

Vision

Renzo abstracts all complexities for end users, enabling them to access additional yields from Eigenlayer with a low barrier to entry, thus promoting the widespread adoption of Eigenlayer. The long-term vision is to collaborate with Eigenlayer to drive permissionless innovation on Ethereum, unlocking more DeFi yield channels and composability opportunities.

Investors

Maven11; SevenX Ventures; Figment, etc.

Project Interpretation

Restaking Narrative is Hot, Eigenlayer Ecosystem Market Prospects are Broad

In the assessment and budgeting articles for the hot narratives in the 2024 crypto market, Restaking is undoubtedly on the list. This concept, first proposed by Eigenlayer, aims to achieve security sharing among various Rollups, sidechains, and middleware (DA Layer/bridges/oracles, etc.), further maintaining the network security of Ethereum. For users, the motivation to participate in restaking comes from the potential for higher yields. Simply put, LRT (Liquid Restaking Token) is a nested version of LST (Liquid Staking Token); staking ETH yields LST, and a second staking of LST yields LRT, which can be further restaked, lent, and used for other financial operations. Each additional staking provides another opportunity to leverage liquidity for profit. Notably, LRT protocols like Renzo also support direct native restaking to Eigenlayer, bypassing the current TVL cap for each LST type on Eigenlayer.

So how big is this market? Currently, the amount of staked Ethereum is 29,235,511, valued at approximately $67 billion, with Liquid Staking accounting for 37.1%, totaling $24.7 billion. In Liquid Staking, Lido holds 85.2%, representing 31.5% of all staked Ethereum. The current ETH balance in the Eigenlayer ecosystem is 277,746, with a total balance of $550 million. Compared to Liquid Staking, the entire ecosystem has 50 times the growth potential.

Impressive Partner Lineup, Creating Competitive Barriers from All Angles

Like LSD, Restaking is also a highly business collaboration-focused field (BD Game). Currently, Renzo has established partnerships with leading projects such as Figment, Gauntlet, Biconomy, Balancer, and Wormhole, and has a former Lido BD head as a project advisor. Additionally, it is building competitive barriers through the following four aspects.

• Building Brand Influence

Renzo Protocol places great importance on research, discussing LRT and AVS (Active Validator Service) to establish expertise and influence in this field.

• Leveraging Network Effects

The Renzo team has rich DeFi product experience, providing a clear advantage in speed of implementation. As one of the only three LSTs launched on the mainnet, Renzo's product interactions are simple and smooth, laying the foundation for attracting users and expanding the user base during the rapid development phase of the Eigenlayer ecosystem.

Renzo supports Wormhole in product design, enabling rapid cross-chain expansion.

• Risk Management Capability

Compared to LST, LRT involves more complex risk management, especially for institutional users. Renzo can provide users with optimal risk-adjusted returns.

• Token Economics

The veToken model incentivizes long-term holding of tokens while guiding incentive directions (AVS can bribe to rent more security).

Binding permissionless operators: Drawing on Rocketpool, a portion of Renzo can be staked to gain the authority to run AVS services for Renzo Restakers, reducing circulating tokens.

Used for acquiring and rewarding early high-quality operators, thus quickly bootstrapping liquidity.

Potential Risks

• Risks of Renzo's smart contracts

• Risks of third-party protocols: including risks from underlying LST protocols and Eigenlayer.
• LRT token depeg risk: Similar to the anchoring relationship between stETH and ETH, it is influenced by market supply and demand and liquidity.
• AVS slashing risk: Higher restaking yields mean higher risks; under extreme conditions, users' principal may be subject to slashing.