Lido faces pressure from EigenLayer restaking and Rocket Pool expansion

Lido faces massive pressure as institutional capital rotates 23% toward EigenLayer native restaking. This movement follows the launch of liquid restaking tokens like rsETH from Kelp DAO and ezETH from Renzo. Kelp DAO attracted over $125 million in deposits recently. EigenLayer, which saw user deposits exceed $1 billion last week, allows validators to secure additional protocols by reusing staked Ether. This process enables the security of cross-chain bridges, oracle networks, and decentralized compute layers. For example, a bridge built as an Active Validation Service requires restaked validators to observe multiple chains, verify transactions, and sign attestations. Data availability layers also use restaked validators to ensure that data posted to the layer remains accessible and verifiable. Lido leads the liquid staking sector with over $26 billion in total value locked and a 2.2% APR. However, liquid staking accounts for 36% of all staked ETH. Lido’s market share in Ethereum staking fell by 5% over the last six months. The competition intensifies as EIGEN trades at $3.15 with a $5.5 billion fully diluted value. New tokens like eETH from Ether.Fi and RSTK from Restake Finance also enter the market. These restaking primitives allow users to earn additional yield from Active Validation Services.

Rocket Pool counters the shift toward EigenLayer with its focus on decentralization via the Saturn upgrade roadmap. The Saturn 2 phase focuses on protecting rETH yield and streamlining withdrawals to defend the rETH peg during volatility. This roadmap aims to lower the barrier for conservative allocators, including institutions. Rocket Pool operates a two-layer system where the first layer involves Liquid Staking and the second involves Node Staking. In the Liquid Staking layer, users stake ETH to receive rETH tokens. In the Node Staking layer, users run validator nodes with a minimum of 16 ETH. Rocket Pool node operators, who require 8 ETH to join, have staked over 700,000 ETH. This represents more than 3% of all Ethereum staked. The Saturn 2 plan includes RPIP-42 to lower capital barriers through bond curves and RPIP-71 to improve withdrawal reliability via EIP-7002. RPIP-73 further protects users by identifying and exiting underperforming nodes. RPIP-44 introduces forced exits to remove validators with significant debt or penalties. The Protocol DAO, run by RPL governance, manages these settings and maintains a 5% RPL inflation rate. Unlike traditional governance that uses token-weight voting, Rocket Pool requires active participation from node operators. The pDAO also uses a security council to propose and execute changes quickly if the protocol faces issues.

The market provides various ways to earn yield, ranging from centralized platforms to decentralized protocols.

Coinbase serves over 100 million users and offers staking for many cryptocurrencies. Nexo provides NETH to Ethereum holders, with yields between 5% and 15% depending on the loyalty tier. Nexo users can also use NETH as collateral for loans. Stakely operates as a validator for over 30 blockchains and includes a staking insurance fund to protect against technical glitches. Stakely offers returns that can reach 34% APY depending on the network. Compound uses liquidity mining and governance participation to provide rewards for supplying assets like ETH and USDC. Gemini offers two tiers: a Basic option and a Staking Pro option that requires 32 ETH for direct network participation. While Coinbase provides a simple interface for a massive user base, Rocket Pool offers a community-owned alternative that allows participants to earn a boosted ROI from both operator commissions and RPL rewards. You already know that liquid staking tokens provide liquidity in DeFi.

The migration to modular security introduces systemic risks via rehypothecation. Rehypothecation occurs when a protocol uses customer collateral for its own purposes, which can amplify losses. A single validator’s ETH might secure Ethereum, a bridge, and an AI compute network at once. If an Active Validation Service suffers an exploit, the resulting slashing event could impact all connected protocols. This creates a layered dependency where one failure cascades across the ecosystem. In July, volatility in LST assets caused stETH to lose its peg to ETH after WETH borrowing rates on Aave rose from 2% to 18%. This spike followed a large withdrawal from a wallet linked to the HTX exchange. During that period, the validator exit queue surged from 1,920 to over 475,000 within a single week. Waiting times for exits increased to nine days. Galaxy Digital Research partially explained the exit queue spike through the heightened requirements of the Pectra update. Lucas Kozinski, a contributor to Renzo, notes that providers must manage which EigenLayer-based businesses they support to mitigate risk. Gabe Tramble of Shoal Research also warns that rehypothecation remains a significant risk to monitor. Will these modular security layers stabilize or collapse under mass slashing?