Eigenlayer vs Symbiotic re-pledge battle

Author: IGNAS | DEFI RESEARCH Source: Substack Translation: Shan Ouba, Golden Finance

I originally planned to write a blog post about this week’s emerging trends in cryptocurrencies, but had to quickly pivot to the topic of heavy staking.

Here’s why: Symbiotic, Eigenlayer’s main competitor, just launched with a deposit cap of $200 million, which was almost reached in one day. Emerging trends can wait, but high-yielding opportunities cannot.

Add in Karak, and now we have three heavily collateralized protocols. So, what happened? How are they different? What should you do?

Motivation behind the launch of Symbiotic

Rumor has it that Paradigm approached Eigenlayer co-founder Sreeram Kannan with the intention of investing, but Kannan chose rival venture capital firm Andreessen Horowitz (a16z). a16z led a $100 million Series B round of financing.

Since then, Eigenlayer has grown to become the second largest DeFi protocol with a total value locked (TVL) of $18.8 billion. Second only to Lido, the locked position value is US$33.5 billion. EIGEN tokens are not yet transferable, and the transaction value is $13.36 billion based on FDV (fully diluted valuation). Considering that Eigenlayer was valued at $500 million FDV in March 2023, this represents a 25x increase in paper earnings.

It's not hard to imagine Paradigm being unhappy with this. In response, Paradigm funded Symbiotic, positioning it as a direct competitor to Eigenlayer. Symbiotic received $5.8 million in seed funding from venture capital giants Paradigm and cyber•Fund.

I don’t know what the specific valuation is. If you know one, please share it in the comments.

The competition between Paradigm and a16z is well known (and joked), but there is a second part to the story.

Symbiotic's second-largest investor, Cyber ​​Fund, was founded by Lido co- founders Konstantin Lomashuk and Vasiliy Shapovalov.

Coindesk reported in May that “people close to Lido believe Eigenlayer’s collateral-heavy approach could pose a threat to its dominance.”

Lido Missed the Liquidity Recollateralized Token (LRT) Trend. In fact, stETH’s TVL has stagnated over the past three months, falling by 10%. Meanwhile, EtherFi and Renzo have seen a surge in inflows, reaching $6.2 billion and $3 billion in TVL respectively.

Heavily staking with LRT is more attractive as it offers higher yields, although currently most is still points farming.

In order to strengthen Lido's position, Lido DAO launched the "Lido Alliance" whose first priority is to develop a permissionless decentralized re-staking ecosystem.

By the way, one of the strategic priorities is to reaffirm stETH as LST rather than LRT.

This is great because we have more tokens and more airdrop opportunities.

Just a month after the initial discussions, a key member of the alliance (Mellow) launched LRT deposits on Symbiotic, supporting stETH deposits!

But before we dive into the unique features and farming opportunities of Mellow LRT, let’s take a step back and discuss the differences between Symbiotic and Eigenlayer.

Symbiotic vs. Eigenlayer

Symbiotic : Permissionless and Modular Symbiotic differentiates itself by being permissionless and modular in design, providing more flexibility and control. Its key features are:

• Multi-asset support : Symbiotic allows direct deposits of any ERC-20 token, including Lido’s stETH, cbETH… This makes Symbiotic more diverse than Eigenlayer, which mainly focuses on ETH and its derivatives (as far as I know, Eigenlayer may support other assets in the future).

• Customizable parameters : Networks using Symbiotic can choose their collateral assets, node operators, rewards and slashing mechanisms. This modularity enables networks to tailor their security settings to their specific needs.

• Immutable Core Contract : Symbiotic’s core contract is non-upgradeable (similar to Uniswap), reducing governance risks and potential failure points. Even if the team disappears, Symbiotic will continue to operate.

• Permissionless design : By allowing any decentralized application to be integrated without the need for approval, Symbiotic provides a more open and decentralized ecosystem.

Symbiotic co-founder and CEO Misha Putiatin told Blockworks, " To be 'symbiotic' means to 'run away from competition like fire and be as selfless as possible and as non-paranoid as possible.'"

Misha also told Blockworks, “ Symbiotic does not compete with other market players – so there is no native staking, rollup or data availability offered.”

When dApps are launched, they often need to manage their own security models. However, the permissionless, modular and flexible design of Symbiotic allows anyone to use shared security to protect their network.

Misha told Blockworks, "The goal of our project is to change the narrative - you don't have to roll out locally - it will be safer and easier to roll out on top of us, on top of shared security."

In practical terms, this means that crypto protocols can launch native staking for their native tokens to increase network security. For example, Ethena partners with Symbiotic to use staked ENA for USDe cross-chain security.

Ethena is integrating Symbiotic with LayerZero’s Decentralized Verification Network (DVN) framework to bring Ethena assets (like USDe) secured by staked ENA across chains. This is one of the first parts of its infrastructure and systems to utilize staking ENA - Symbiotic blog post.

Other use cases include cross-chain oracles, threshold networks, MEV infrastructure, interoperability, shared orderers, and more.

Symbiotic launched on June 11, and the deposit cap for stETH was reached within 24 hours. Oh, did I mention there are still points for depositors?

Eigenlayer: a management and integration approach

Eigenlayer takes a more managed and integrated approach, focusing on leveraging the security of Ethereum ETH stakers to support various dApps (AVSs):

• Single asset focus : Eigenlayer mainly supports ETH and its derivatives. This focus may limit flexibility compared to Symbiotic's multi-asset support. Although more assets can be added.

• Centralized Management : Eigenlayer manages the delegation of staked ETH to node operators, who then validate various AVS. This centralized management helps streamline operations, but can lead to bundling of risks, making it difficult to accurately assess the risks of individual services.

• Dynamic Marketplace : Eigenlayer provides a decentralized trust marketplace, allowing developers to use pooled ETH security to launch new protocols and applications. Risk is shared among depositors in the pool.

• Cuts and Governance : Eigenlayer’s management approach includes specific governance mechanisms to handle cuts and rewards, which may provide less flexibility.

To be honest, Eigenlayer is a very complex protocol whose risks and overall workings are beyond my understanding, and I had to compile critical comments from various sources to write this part. One such source is Cyber ​​Fund.

I’m not taking sides, I believe the comparison of Symbiotic vs. Eigenlayer will spark heated discussions among DeFi geeks.

Welcome to Mellow Protocol: Modular LRT

What impressed me most about the Symbiotic launch was the immediate launch of LRT on the Mellow protocol. As a Lido Alliance member, Mellow benefits from Lido’s marketing, integration support, and launch liquidity.

As part of the agreement, Mellow will reward Lido with 100 million MLW tokens (10% of the total supply), which will be locked in the Lido Alliance’s legal entity after the TGE.

These tokens will be subject to the same vesting and cliff terms as team tokens: 12-month cliff period after TGE, 30-month vesting period after cliff period (edit revised based on feedback received).

Two other benefits mentioned in the alliance proposal:

• “Mellow will help spread Lido’s geographic and technical decentralization efforts beyond Ethereum validation.”

• “Lido node operators can launch their own composable LRT and take control of the risk management process by choosing an AVS that suits their needs, rather than facing the imposition of an LRT or heavy-staking protocol.”

The impact of the collaboration will take time to show, but LDO rose 9% in 24 hours. This is really a good thing!

Interestingly, the $42 million cap for one of the four LRT pools had already been reached before the Lido collaboration was tweeted.

Anyway, if you're familiar with Eigenlayer's LRTs, such as Etherfi and Renzo, you'll know that depositing into Mellow is twice as fun: you get points for both Symbiotic and Mellow.

But Mellow is different from Eigenlayer's LRT...

What problems does Mellow solve for LRT?

The Mellow protocol allows anyone to deploy LRT. Hedge funds, staking service providers (such as Lido) can all do it. In theory, I could do that too.

This means that the amount of LRT will increase significantly, which will harm its liquidity and complicate its integration in DeFi protocols.

However, it also has some advantages:

• Diverse risk models : Current LRTs often force users to adopt a one-size-fits-all risk model. Mellow allows for multiple risk adjustment models, allowing users to select their preferred risk exposure.

• Modular Infrastructure : Mellow’s modular design allows shared secure networks to request specific assets and configurations. Risk managers can create highly customized LRTs for their needs.

• Smart Contract Risk : By allowing modular risk management, Mellow reduces the risk of vulnerabilities in smart contracts and shared security network logic, providing a more secure environment for heavy stakers.

• Operator Centralization : Mellow diversifies operator selection decisions, preventing centralization and ensuring a balanced and decentralized operator ecosystem.

• LRT cycle risk : Mellow’s design solves the risk of liquidity crunch caused by withdrawal closure. Withdrawals currently take 24 hours.

Interestingly, Mellow specifically mentioned that they can launch LRT on top of any staking protocol, such as Symbiotic, Eigenlayer, Karak or Nektar. But I would be very surprised by Mellow's direct collaboration with Eigenlayer.

However, I wouldn't be surprised to see the current Eigenlayer LRT protocol work with Symbiotic or Mellow. In fact, Coindesk reported that a person close to Renzo and Symbiotic mentioned that Renzo had been discussing integration with Symbiotic a month ago.

Finally, a cool feature of the permissionless Mellow vault is that we may have LRT for DeFi tokens. For example, the ENA LRT token is liquid-heavy collateralized ENA on Symbiotic, protecting USDe cross-chain bridging.

This cycle has seen little innovation in token economics, but Symbiotic may make holding DeFi governance tokens attractive again.

DeFi Degen’s Heavy Collateral War Playbook

As of writing, there are four LRT vaults on Mellow, with four unique curators. The deposit limit is about to be reached.

The timing of the Symbiotic + Mellow LRT launch is perfect: EtherFi S2 credits end on June 30, Renzo S2 is also in the works, and the Swell airdrop will arrive soon after withdrawals are enabled.

I'm almost worried about what to do with my ETH after the LRT farm airdrop expires. Thanks to VCs and Whale Games, airdrop farmers will also be well fed.

At this stage, the game is very simple: deposit into Symbiotic to earn points, or up the stakes one level and farm directly on Mellow.

Please note that since Symbiotic 's stETH deposit is full, you will not receive Symbiotic points, but will receive 1.5x Mellow points.

The airdrop farming game will likely be similar to Eigenlayer’s playbook: Mellow LRT will be integrated into DeFi, we will see leveraged farms on Pendle, and across multiple lending protocols.

But I believe the Symbiotic token may be launched before EIGEN is tradable.

In an interview with Blockworks, Putiatin said that the mainnet could go live “as early as late summer for some networks.” Does this mean tokens will also go live?

Stealing the heavily pledged heat from Eigenlayer could be a smart move, especially if the market turns bullish soon and given Symbiotic's aggressive partnership strategy.

The two partners that shocked me the most: Blockless and Hyperlane. The two protocols initially partnered with Eigenlayer as shared-security AVS, but are they changing alliances?

Maybe Symbiotic promised more support and token distribution? I need more answers!

Regardless, these heavy staking wars are good for us decentralized finance (DeFi) airdrop farmers, as it opens up more opportunities and could push Eigenlayer to launch tokens earlier.

It's still early days for Symbiotic, but early deposit inflows are very bullish. I'm currently farming on Symbiotic and Mellow, but plan to move to Pendle's YT when the strategy opens.

I believe Pendle’s Symbiotic YT token expiration date will provide us with further clues into the Symbiotic TGE timeline.

Last but not least: Karak

Karak is a hybrid. It's similar to Eigenlayer, but Karak calls them Distributed Security Services (DSS) instead of AVS.

Karak also launched its own Layer 2 (called K2) sandbox for risk management and DSS. However, it is more like a testnet than a true L2.

But Karak managed to attract over $1 billion in TVL! Why? There are two main reasons:

• Karak supports Eigenlayer’s LRT, so farmers deposit LRT to earn Eigenlayer + LRT + Karak points at the same time.

• Karak has raised over $48 million from Coinbase Ventures, Pantera Capital, Lightspeed Ventures. A good name will hopefully lead to a high drop.

However, since its announcement in April, Karak has yet to announce any major partners, prominent LRT protocols launched on Karak, or any exclusive DSS/AVS partners.

I really hope to see more positive development from Karak, as Symbiotic is trying to catch up to Eigenlayer. Karak needs to work harder.