Dialogue with Kelp DAO Founder: LRT Breaks the Zero-Sum Dilemma of Re-Staking, Plans to Develop on Platforms like Solana
This article will explore KelpDAO's insights on the Restaking track, the project's future product planning, views on competitors, and perspectives on the Chinese market.Author: Deep Tide TechFlow
As the Solana ecosystem rises again and the community's slogan of "surpassing Ethereum" gains momentum, loyal supporters of Ethereum inevitably emphasize its status by citing the narrative of Restaking.
As an important narrative in this cycle, the popularity of the Restaking track is evident: on one hand, the track has attracted a massive amount of capital, with CoinGecko data showing its market capitalization exceeding $9 billion; on the other hand, innovation within the track is frequent, from the native Restaking protocols primarily based on LSTs to the LRT protocol that realizes the "one fish, multiple eats" gameplay, high-quality projects continue to emerge, with KelpDAO being a standout, boasting over $850 million in TVL (Total Value Locked) and more than 40,000 active Restakers.
Coinciding with KelpDAO's "Mega Million Marathon" event calling on the community to sprint towards the $1 billion TVL milestone, we had an in-depth conversation with KelpDAO founder Amitej Gajjala to discuss KelpDAO's insights on the Restaking track, future product planning, views on competitors, and perspectives on the Chinese market.
In the interview, Amitej Gajjala candidly stated: increasing adoption can make Ethereum and similar platforms strong competitors to traditional finance. KelpDAO also plans to develop staking solutions on platforms like Solana, BNB Chain, and Bitcoin, thereby expanding our products across multiple ecosystems.
In this issue, let’s delve into KelpDAO's past, present, and future, and understand how it, as a representative project of the LRT track, stands on user demands to achieve multiple financial innovations, as well as the insights and extensions its success offers to current Web3 entrepreneurs.
Key Points
The transformative nature of the crypto market stems from the following reasons: the market is global and without geographical restrictions, allowing anyone to participate; all systems and codes are open-source, enabling developers worldwide to freely use existing technologies and innovate; the introduction of tokens gives these technologies actual value.
DeFi platforms need to provide substantial incentives to retain their users, and Eigenlayer must also increase rewards to prevent TVL loss, creating a zero-sum dilemma. KelpDAO alleviates this issue by building a liquidity layer on top of Restaking platforms like Eigenlayer.
Kelp DAO is somewhat similar to protocols like Lido, but focuses on Restaking rather than staking. Kelp DAO supports LSTs and native tokens across multiple L2s, acting as an abstraction layer above Eigenlayer, allowing users to invest without worrying about underlying technical interactions, thus simplifying user processes and reducing friction and cost.
Kelp DAO's smart contracts have been audited by three renowned security firms: Sigma Prime, MixBytes, and Code4rena. Additionally, with the cross-chain functionality we provide today, users can confidently stake their assets and withdraw them as needed.
Kelp DAO actively collaborates with media from regions including China, South Asia, Europe, and the United States to raise awareness and educate potential users, which plays a crucial role in acquiring a large user base. Furthermore, Kelp DAO has partnered with numerous hardware and software wallets to facilitate liquid staking directly within wallets.
Kelp DAO's current focus is on expanding its user base and increasing TVL. Additionally, Kelp DAO plans to build Restaking platforms on Solana, BNB Chain, Bitcoin, and non-EVM chains to enhance the project's influence and accessibility.
Integrating real-world assets into blockchain platforms could drive the mass adoption of DeFi. Moreover, L2 solutions, with their lower gas fees and faster transaction speeds, attract a broader audience into the crypto ecosystem, playing a vital role.
Eigenlayer itself does not directly provide additional rewards; these are offered by services built on Eigenlayer. Essentially, the more services developed on Eigenlayer, the higher the potential rewards for users.
LRT has the potential to serve as an aggregation layer for various Restaking platforms like Eigenlayer, greatly improving user experience.
For any young entrepreneur, regardless of the industry, the most critical aspect is to identify the real problems affecting the majority of the market. Understanding and addressing genuine needs is the foundation for building successful businesses.
The Origin of Kelp DAO: Building a Liquidity Layer on Restaking Platforms to Break the Zero-Sum Game
Deep Tide TechFlow: Given your initial career experience as a business analyst in the tech field, how did you get involved in the crypto industry? What attracted you to dive into the crypto space, and why did you decide to focus on the Restaking narrative?
Amitej Gajjala:
One of the most pivotal experiences in my career stems from my background in business management. I attended a top college in India and graduated from a leading business school. After that, I worked at a leading management consulting firm, AT Kearney, in India and Southeast Asia. That period was crucial for me as it cultivated my insights into business operations and organizational capabilities.
My passion for startups began in the late 2010s, a significant time for the Indian startup ecosystem, as major unicorn projects like Flipkart and PhonePe began to gain traction. I joined India’s largest food tech company, Swiggy, as the head of strategy and transformation. Over three years, I accumulated a wealth of skills and experiences in scaling companies and building efficient organizations.
By the end of 2019, during the DeFi Summer, I developed a keen interest in the blockchain space, as protocols like Uniswap and Aave began to gain popularity. I started to seriously study cryptocurrencies, including the staking track. As my research deepened, I realized the transformative potential of this technology, which could fundamentally change the entire financial industry. Everything became clear to me at that moment, and I decided to leave my traditional job and pursue a full-time career in cryptocurrency.
Deep Tide TechFlow: You believe this innovation has the potential to change the financial system, meaning it can operate on a distributed ledger while maintaining open standards, allowing for permissionless integration with other protocols without being limited by silos, right?
Amitej Gajjala:
Yes, I believe the transformative nature of the crypto market comes from several reasons:
First, the market is global and without geographical restrictions, allowing anyone to participate.
Second, all systems and codes in the crypto space are open-source, meaning developers worldwide can freely use existing technologies and innovate. In this regard, we can see the allure of open-source technology, much like how Linux changed internet infrastructure. The crypto space has also undergone a similar revolution in recent years, and this trend is expected to accelerate further in the next decade.
The third reason is the introduction of tokens, which has led people to assign actual value to these technologies. Developers globally are leveraging these open-source systems to create a "supercharged version of the internet."
Deep Tide TechFlow: About three years ago, you created Kelp DAO, or more accurately, Stader Labs. I remember I started getting involved in the cryptocurrency space at the end of 2021, right around the time Ethereum transitioned from Proof of Work (PoW) to Proof of Stake (PoS) in the summer of 2022, when the Restaking narrative began to gain traction. Can you share the story of Kelp DAO's inception? What prompted you to create Stader Labs, which ultimately incubated Kelp DAO? At the project's inception, why did you believe Restaking was a promising direction?
Amitej Gajjala:
Stader Labs is not just an incubator; it is a stable and direct investor behind Kelp. Additionally, we have co-founders in common.
At the beginning of 2023, we closely monitored the entire Restaking ecosystem and realized that Restaking would attract a massive influx of capital. This trend could easily be captured in Eigenlayer's market performance, with approximately $14 to $15 billion staked in Eigenlayer. We also observed that many DeFi applications would offer various incentives to users to maintain their Total Value Locked (TVL), and we quickly realized that this could lead to a zero-sum game scenario. Therefore, we decided to build a liquidity layer on top of Restaking platforms like Eigenlayer, which would provide significant advantages to users.
Deep Tide TechFlow: Can you elaborate on the zero-sum game concept you mentioned?
Amitej Gajjala:
Let’s take the scenario where Eigenlayer operates independently. Typically, users would deposit their assets into Eigenlayer to earn higher rewards. For example, users might transfer their Ethereum from platforms like Aave or Uniswap to Eigenlayer for Restaking because the rewards here are more attractive. Consequently, other DeFi platforms need to provide substantial incentives to retain their users.
Currently, as these DeFi platforms enhance their incentives, Eigenlayer must also increase rewards to prevent TVL loss. Ultimately, this could lead to both platforms not gaining a significant advantage, and users face a dilemma as they must choose between traditional DeFi platforms and Eigenlayer, unable to benefit from both simultaneously.
Moreover, when users deposit assets into platforms like Eigenlayer, they lose liquidity since they cannot cancel the Restaking within seven days. This is why adding a liquidity layer on top of Eigenlayer is a strategic move, allowing users to maximize the benefits of both DeFi and Restaking.
Kelp DAO Advantages: Simplifying Processes to Support Withdrawals, Multi-Audit Ensuring Security
Deep Tide TechFlow: Can you explain how Kelp DAO operates based on Eigenlayer?
Amitej Gajjala:
Kelp DAO operates by interacting with protocols like Eigenlayer through smart contracts. When users deposit their Ethereum into Kelp DAO, they receive a synthetic token called rsETH. Essentially, Kelp DAO Restakes the users' Ethereum on Eigenlayer. Then, users hold the rsETH token, which represents their staked Ethereum.
Deep Tide TechFlow: Regarding the synthetic tokens issued by Kelp DAO, are they similar to synthetic stablecoins, or do they serve different functions?
Amitej Gajjala:
Kelp DAO is somewhat similar to protocols like Lido, but focuses on Restaking rather than staking. While Lido facilitates liquid staking, Kelp DAO specializes in liquid Restaking. This means that when users deposit their Ethereum into Kelp DAO, the platform Restakes it on systems like Eigenlayer. In return, users receive a synthetic token representing their Restaked Ethereum, allowing them to maintain liquidity while their assets are utilized elsewhere.
Deep Tide TechFlow: Can you explain the tokenomics and the mechanism for managing the functionality of that synthetic token?
Amitej Gajjala:
Kelp DAO simplifies the process for users who want to participate in staking and Restaking. Users can stake their Ethereum or liquid staking tokens, such as Lido's stETH or Stader Labs' ETHx, using Kelp DAO. When they do this, they receive a synthetic token called rsETH. As Ethereum staking and Restaking rewards accumulate, the exchange rate of rsETH relative to Ethereum increases, reflecting the growth in the value of the staked assets.
Deep Tide TechFlow: How does Kelp DAO maintain a competitive advantage and stand out compared to other Restaking track projects?
Amitej Gajjala:
First, Kelp DAO is a comprehensive platform that accepts liquid staking tokens (LSTs) and native tokens, with approximately $40 billion in staking tokens available for use. We accept these tokens. A significant advantage for users in different regions relates to fee impacts. Typically, converting staking tokens back to their original form may incur double fees. However, through Kelp DAO, users can easily stake their staked tokens and receive rsETH without incurring additional fees.
The second advantage is the security and reliability of Kelp DAO. Our platform benefits from the experience of the Stader Labs team, which has developed six different liquid staking solutions across multiple blockchain networks. Additionally, Kelp DAO's smart contracts have been audited by three renowned security firms: Sigma Prime, MixBytes, and Code4rena. Furthermore, with the cross-chain functionality we provide today, users can confidently stake their assets and withdraw them as needed. These are the two main advantages offered by Kelp DAO.
Deep Tide TechFlow: Why can't other projects replicate what Kelp DAO is doing? What makes Kelp DAO unique in providing this solution?
Amitej Gajjala:
This is essentially a difference in product architecture. While some protocols only accept Ethereum, Kelp DAO also accepts liquid staking tokens (LSTs) as part of our collaborative approach, which distinguishes our product from others. Currently, most platforms do not offer withdrawal options, but Kelp DAO provides withdrawal functionality. This is particularly beneficial in cases of insufficient liquidity in the secondary market.
Deep Tide TechFlow: Do you mean that if someone deposits funds, they can withdraw after a 7-day wait?
Amitej Gajjala:
Withdrawals have a 7-day delay, but users can indeed withdraw funds through us. This distinguishes us from other protocols that have not yet provided this feature, leading to users' funds being locked without the option to withdraw.
Deep Tide TechFlow: As a Restaking track project, Kelp DAO has a close relationship with EigenLayer. How do you see the collaboration between KelpDAO and EigenLayer driving a win-win for both ecosystems?
Amitej Gajjala:
We do have a close partnership with Eigenlayer, and our team works closely with them on technical and ecosystem development.
For users interacting with Eigenlayer through our platform, they do not need to interact directly with Eigenlayer themselves. We act as an abstraction layer above Eigenlayer, simplifying the user process. When users engage with our Restaking, we handle the Restaking on Eigenlayer, allowing them to invest without worrying about underlying technical interactions.
Deep Tide TechFlow: Imagine that more projects similar to Eigenlayer will emerge in the future. In an increasingly competitive landscape, how will these platforms maintain reward incentives for their liquidity providers?
Amitej Gajjala:
First, it’s important to note that Eigenlayer itself does not directly provide additional rewards; these are offered by services built on Eigenlayer. Essentially, the more services developed on Eigenlayer, the higher the potential rewards for users. If the ecosystem expands and we see a surge in services on Eigenlayer, users can expect more rewards. Imagine if there are three or four platforms equivalent to Eigenlayer, each hosting multiple services. This means that the services on such staking platforms will increase, bringing more rewards to users. As long as these services continue to value and pay for enhanced security, users will definitely be rewarded.
Deep Tide TechFlow: Can you share the development history of the Restaking track? An overview of its history, how Eigenlayer was developed, and how the concept of a liquidity layer emerged? Additionally, could you share your initial impressions of this ecosystem and your views on how the Restaking track will evolve in the future?
Amitej Gajjala:
Eigenlayer's initial emergence addressed a key need, as these services not only require substantial economic security guarantees, sometimes amounting to billions of dollars, but also customizable penalty conditions. For example, an oracle provider might establish specific penalty conditions based on the accuracy of on-chain data by validators. Similarly, an MEV protocol might require validators to construct blocks in a specific format and penalize non-compliance.
The concept of Eigenlayer is based on two key assumptions. The first is the existence of protocols that require programmable penalty conditions to ensure economic security. The second assumption is that a large amount of staked Ethereum represents an economic security resource that can be leveraged.
A year after its launch, Eigenlayer's development seems to confirm these assumptions. It currently manages a total value locked (TVL) of $16 billion and supports at least 60 services or applications built on its platform, demonstrating a strong demand for its security guarantees.
Moreover, liquidity layers like Kelp DAO built on Eigenlayer enhance this ecosystem by providing users with higher yields and utility. These liquid Restaking tokens can be utilized in the DeFi space for activities such as lending or participating in protocols like Uniswap, Balancer, or Gearbox. This further utilization of assets within DeFi significantly propels the ecosystem's growth.
Deep Tide TechFlow: Given the recent widespread attention and active participation in the incentive activities launched by Kelp DAO, can you share the achievements the team has made in this regard? Besides rewards, what factors do you think contributed to the great success of this event?
Amitej Gajjala:
Our incentive strategy has significantly enhanced our attractiveness in the eyes of users. Initially, we offered 100 Eigenlayer points for the first 30,000 ETH staked, followed by 50 points, attracting 55,000 to 60,000 ETH. Last week, we relaunched the event, offering 100 Eigenlayer points and an additional $50,000 in USDC rewards to the top 100 stakers. This event brought an additional 10,000 to 20,000 ETH to the Kelp DAO platform. The event concluded last week, and we plan to launch another event today or tomorrow. Once the event is finalized, we will immediately share details about the upcoming activities.
PS: At the time of this article's publication, the Kelp DAO "Mega Million Marathon" event is in full swing. The event aims to provide over $1 million in rewards to users Restaking through the Ethereum mainnet and L2 networks, with reward categories including USDC, ARB tokens, OP tokens, SD tokens, and more EigenLayer points and Kelp Miles rewards. Currently, Kelp DAO accepts three assets: native ETH, Stader Labs' ETHx, and Lido Finance's stETH, and supports native minting of rsETH across seven chains. The event rewards will be distributed after the event concludes on May 21, 2024. Interested Restaking users are encouraged to participate actively to win generous rewards.
Deep Tide TechFlow: User acquisition is a key characteristic of success in the crypto industry. Can you share the specific strategies you have adopted for user acquisition?
Amitej Gajjala:
One of our key strategies is leveraging media partnerships in different regions, including China, South Asia, Europe, and the United States. We have conducted extensive media and marketing efforts to raise awareness and educate potential users, which has played a crucial role in acquiring a large user base.
Additionally, we have established partnerships with numerous hardware and software wallet providers to facilitate liquid staking directly within wallets. For example, we have integrated with popular wallets like Ledger & OKX Web3 Wallet. We are also finalizing a partnership with another major wallet provider, which we expect to announce and launch soon.
Deep Tide TechFlow: You mentioned that Kelp DAO's smart contracts have been audited three times. As a founder, you have undoubtedly made significant contributions. Regarding cybersecurity, what is one concern you are most worried about? How will you continue to enhance security to protect the liquidity layer?
Amitej Gajjala:
We ensure that every smart contract we deploy undergoes multiple audits by top auditors. This is crucial as it ensures that high-quality security experts have thoroughly reviewed our contracts. Our team is highly skilled in developing smart contracts, but independent audits are essential before launching any new contract. Ultimately, this is to protect users' funds, which is our top priority.
Deep Tide TechFlow: In terms of smart contract coding, what does security specifically mean?
Amitej Gajjala:
It is crucial that no hacker or malicious actor can access users' funds or affect the operation of our smart contracts. Ensuring the security of user assets is our top priority.
Deep Tide TechFlow: How challenging is it to develop a perfectly secure smart contract that is immune to potential vulnerabilities and hacking attacks?
Amitej Gajjala:
Effective smart contract development relies more on experience and vision than just hard work. Having a strong architect with a clear vision is essential to design contracts correctly and minimize potential attack vectors from external hackers. Additionally, the skill level of the development team is also critical. These factors together ensure that our smart contracts are robust and secure.
Kelp DAO Future: Moving Towards Solana, BNB Chain, and Bitcoin Ecosystems
Deep Tide TechFlow: As we enter the second half of 2024, what will be Kelp DAO's focus moving forward?
Amitej Gajjala:
Our current focus is on expanding our user base and increasing our Total Value Locked (TVL). Through collaborations with wallet partners and integrations with various DeFi platforms, we see tremendous growth opportunities, and we plan to achieve these goals in the second half of 2024.
Additionally, we aim to expand our products across multiple ecosystems by developing staking solutions on platforms like Solana, BNB Chain, and Bitcoin. We also plan to build Restaking platforms on non-EVM chains to enhance our project's influence and accessibility.
Deep Tide TechFlow: What challenges do you face when expanding into non-EVM ecosystems like Solana and Bitcoin?
Amitej Gajjala:
We plan to expand in the third quarter. One of the challenges we face is the unique languages and technical architectures of each ecosystem. However, given our development expertise on both EVM and non-EVM chains, this technical aspect is not a major barrier for us.
A more significant challenge lies in building communities and expanding our user base in these new ecosystems. To address this, we plan to deploy targeted marketing and education programs to attract potential users and foster strong community support.
Deep Tide TechFlow: Can you describe the current state of the community and Kelp DAO's governance structure?
Amitej Gajjala:
Currently, the Kelp token has not yet been issued. We plan to gradually implement governance features after the Kelp token TGE is completed.
Kelp DAO Industry Insights: Mass Adoption is Key, RAW and L2 Play Important Roles
Deep Tide TechFlow: What changes or innovations do you foresee for LRT in the future?
Amitej Gajjala:
LRT has the potential to serve as an aggregation layer for various Restaking platforms like Eigenlayer. This will enable users to choose which platforms to delegate their Ethereum to, enhancing strategic flexibility. One of the major innovations we are introducing is native Restaking on L2 networks, allowing users on various L2s like Arbitrum and Optimism to easily interact with us without incurring any gas fees. This is a significant advancement as it eliminates any transaction costs or slippage, providing users with a seamless experience.
Another noteworthy innovation involves liquidity. Typically, directly Restaking on platforms like Eigenlayer would mean a loss of liquidity, as funds cannot be withdrawn within seven days. However, through LRT, users can immediately trade their tokens on the secondary market or use them as collateral in lending markets. This flexibility significantly enhances the liquidity and utility of staked assets.
Innovations in user experience are twofold. First, users no longer need to choose validators or research which validators perform well; the Kelp DAO platform manages this for them. Second, users no longer need to differentiate services based on slashing conditions or security issues. Kelp DAO handles these considerations, ensuring that users utilize services that maintain high-security standards without having to deal with complexities themselves.
Deep Tide TechFlow: So, LRT will be able to improve user experience and serve as a potential liquidity aggregation layer in the future?
Amitej Gajjala:
Innovations in user experience are twofold. First, users no longer need to choose validators or research which validators perform well; the Kelp DAO platform manages this for them. Second, users no longer need to differentiate services based on slashing conditions or security issues. Kelp DAO handles these considerations, ensuring that users utilize services that maintain high-security standards without having to deal with complexities themselves.
Deep Tide TechFlow: Given that Restaking is part of DeFi, how do you view the future development direction of DeFi, particularly regarding Ethereum-based DeFi versus non-EVM DeFi?
Amitej Gajjala:
The role of Ethereum in the future financial ecosystem is a rather philosophical question, largely depending on the number and quality of applications developed within its ecosystem, as well as the performance of other platforms like Solana. Ethereum is currently the frontrunner, largely due to its large developer community, making it the preferred choice for many developers. It has the potential to become the financial pillar of the world.
Innovative DeFi applications, especially those creating new financial services on the blockchain, are crucial for driving the adoption of decentralized finance. Increased adoption can make Ethereum and similar platforms strong competitors to traditional finance. The emergence of diverse financial applications on these platforms is vital for this shift. I am optimistic that we will make significant progress in this direction over the next decade.
Deep Tide TechFlow: What do you think will be the turning point in shifting public attention from traditional finance to decentralized finance?
Amitej Gajjala:
Integrating real-world assets into blockchain platforms could be a game-changer for adoption. Additionally, L2 solutions, with their lower gas fees and faster transaction speeds, attract a broader audience into the crypto ecosystem, playing a crucial role. These factors are key drivers of growth. As the user base expands, traditional finance may take cryptocurrencies more seriously and begin to offer more solutions leveraging this technology, further encouraging widespread adoption.
Deep Tide TechFlow: Besides the differences in gas fees, what are the main distinctions between various Layer 2 solutions?
Amitej Gajjala:
Currently, we are in the early stages of Layer 2 development. While platforms like Arbitrum and Optimism are leading, ZK-based L2s (like Scroll and Linear) also have great potential to gain attention. Each L2 has the potential to dominate the market, depending on its ability to attract a strong developer ecosystem capable of creating innovative applications.
Deep Tide TechFlow: What criteria does Kelp DAO use when selecting partner L2 networks?
Amitej Gajjala:
Our strategy involves a combination of business development work and assessing the potential Total Value Locked (TVL) on specific L2 platforms. This approach helps us effectively identify opportunities and prioritize.
Deep Tide TechFlow: Given the competitive landscape, what bottlenecks have you observed from the perspective of founders and the ecosystem that hinder TVL growth? Additionally, what strategies have proven effective in attracting more TVL and increasing daily and monthly active users, and how do you plan to further improve these metrics?
Amitej Gajjala:
Our most important goal is to attract sustainable TVL. While positive growth is our target, we prioritize sustainability to avoid attracting short-term speculators or farmers only interested in immediate profits. Our focus is on attracting a diverse user base that understands and appreciates the long-term benefits of our platform. To achieve this, we combine media exposure, targeted marketing, and educational efforts to build a knowledgeable and loyal community.
Deep Tide TechFlow: Given Kelp DAO's success and your transition from engineering to business focus, what advice do you have for aspiring Web3 entrepreneurs with a business background? Specifically, what advice do you have regarding team building and finding skilled architects to collaborate with?
Amitej Gajjala:
For any young entrepreneur, regardless of the industry, the most critical aspect is to identify the real problems affecting the majority of the market. Understanding and addressing genuine needs is the foundation for building successful businesses.
Deep Tide TechFlow: Yes, so the industry doesn't matter, right?
Amitej Gajjala:
Yes, that is a fundamental concept. Today, it is crucial for companies to focus on solving real, substantive problems. While many businesses currently prioritize superficial measures like review ratings, the most successful entrepreneurs are those who tackle genuinely challenging issues. If the problem is significant enough, there will always be opportunities to create value and generate revenue by solving it. Therefore, identifying and focusing on real problems is vital for long-term success.
