EtherFi’s eETH token will offer exposure to both Ethereum staking and restaking

eETH, the highly-anticipated liquid staking token from EtherFi, is now live on Ethereum’s Goerli testnet ahead of its Nov. 6 mainnet launch.

Liquid staking tokens (LSTs) allow holders to access exposure to staking rewards without operating a node, and can also be used in DeFi protocols to generate extra yields. eETH differentiates itself from competitors by also offering holders exposure to restaking yields via EigenLayer.

“Staking with eETH on EtherFi automatically restakes on EigenLayer and accrues staking rewards while allowing users to use eETH in other DeFi protocols,” EtherFi said. “No other liquid staking protocol has this capability.”

EtherFi added that its technical architecture uses sharding to ensure that stakers retain control over their keys, whereas node operators generate the keys for rival LST protocols.

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Lido faces new competition

eETH’s impending mainnet launch comes as Lido, the top LST provider, is facing increasing criticism over refusing to self-limit its staking.

According to Dune Analytics, Lido’s validators control 31.6% of staked Ether’s supply. Danny Ryan of the Ethereum Foundation recently warned that any singular entity amassing a third of Staked Ether poses “a systemic threat to Ethereum.”

“At a third, if someone served those three operators at Lido… and they say ‘shut it down’, then we have an issue with liveness,” Ryan said. “It’s where we begin to potentially have issues.”

On Oct. 13, EtherFi announced it will implement measures to self-limit its staking dominance at 25% of both the staked Ether’s supply and Ethereum’s validator headcount into the protocol’s smart contracts. EtherFi has attracted around 18,000 ETH since beginning its staged rollout in April.

“We think it’s irresponsible to not commit to self-limiting,” Mike Silagadze, the founder and CEO of EtherFi, told The Defiant.

Lido’s dominance is down from 32.5% in early September.

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EigenLayer

EtherFi is betting that offering native restaking yields through EigenLayer will attract users away from LST incumbents.

EigenLayer allows stakers and LST holders to earn additional revenue by securing an Actively Validated Service (AVS) module.

While Ethereum validators process transactions written in the Solidity programming language for the Ethereum Virtual Machine (EVM), EigenLayer leverages Ethereum’s staking layer to validate non-EVM code through its AVS modules.

In a recent appearance on The Defiant Podcast, Sreeram Kannan, EigenLayer’s founder, said the protocol is suited to “anything that requires a decentralized validation network,” such as Layer 1 blockchains, DeFi protocols, or other web3 services.

“Restaking has the power to extend the Ethereum trust layer and help the network with decentralization and value accrual,” EtherFi said.

Restaking Risks

While restaking offers additional rewards to users, the opportunity for extra profits comes with heightened smart contract and slashing risks.

Eigenlayer users who secure an AVS operator that misbehaves will face slashing penalties, meaning they could lose a portion of their staked Ether due to the actions of third-party entities. Restakers also face slashing penalties if they fail to validate their chosen AVS modules.

“Staking introduces both slashing and additional smart contract risk to stakers so it is something users should consider.” Silagadze said. “So far, ETH staking slashing risk has been very close to zero, but this is not necessarily going to be the case with restaking services. EtherFi will use protocol governance to determine which services to support and help mitigate the risk.”

Silagadze added that EtherFi may also introduce an LST that does not support restaking in the future.

The team also said it is partnering with prominent DeFi protocols including Balancer, Aura, and Pendle to ensure the eETH token offers DeFi utility at mainnet launch.

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