The Future of Yield Farming: Powered by Staking Derivatives

$100B+ in staked ETH is locked, non-transferable, and yields a static ~3-4% APR. This creates a massive opportunity cost for DeFi, fragmenting liquidity and forcing users to choose between security and yield.

• Capital Inefficiency: Idle collateral cannot be used as collateral in lending markets or for liquidity provision.
• Yield Fragmentation: Protocols like Aave and Compound cannot natively integrate staking yields, creating separate yield silos.

LSTs like Lido's stETH and Rocket Pool's rETH tokenize staked positions, creating a fungible yield-bearing asset. This turns locked capital into a base money layer for DeFi, enabling composability.

• Capital Efficiency: Use stETH as collateral on Aave to borrow stablecoins, creating leveraged staking positions.
• Yield Aggregation: LSTs become the foundational layer for yield strategies in protocols like EigenLayer (restaking) and Pendle (yield tokenization).

EigenLayer introduces restaking, allowing LSTs to secure additional services (AVSs) for extra yield. Pendle and Notional then separate this yield stream into principal and interest components, creating tradable derivatives.

• Yield Multiplication: Restaking can add 5-15%+ extra yield on top of base staking rewards.
• Risk/Return Engineering: Traders can speculate on future yield rates, while farmers can lock in fixed yields, decoupling risk from principal.

Native staking locks up $100B+ in assets, creating massive opportunity cost. This capital is illiquid, cannot be used as collateral, and is trapped in a single chain's security model.

• Capital Inefficiency: Staked ETH yields ~3-4%, while DeFi lending can offer 5-15%.
• Security vs. Utility Trade-off: Validators must choose between securing the network and pursuing yield.
• Single-Point Failure: A slashing event on the base chain can wipe out a validator's entire capital stack.

LSTs tokenize staked positions, creating a fungible asset (e.g., stETH, rETH) that can be used across DeFi. This unlocks the composability of staked capital.

• Yield Stacking: Use stETH as collateral to borrow stablecoins for further yield farming, creating leveraged staking positions.
• Risk Diversification: Protocols like Rocket Pool decentralize node operation, mitigating slashing and censorship risks.
• Market Dominance: Lido commands ~$30B TVL, demonstrating massive demand for liquidity over raw yield.

EigenLayer introduces restaking, allowing ETH stakers to opt-in to secure additional services (AVSs) like rollups, oracles, and bridges for extra yield. This creates a marketplace for cryptoeconomic security.

• Yield Amplification: Stakers earn base PoS yield + rewards from secured services.
• Shared Security Model: New protocols bootstrap security instantly by tapping into Ethereum's validator set.
• Systemic Risk: Creates new slashing conditions and introduces correlation risk across the DeFi ecosystem.

Protocols like Ether.fi and Kelp DAO issue Liquid Restaking Tokens (eETH, rsETH), which abstract the complexity of managing multiple AVS exposures. They become the base layer for a new yield pyramid.

• Automated Risk Management: LRT protocols actively manage AVS selection and slashing risk on behalf of depositors.
• Hyper-Composability: LRTs are deposited into lending markets, DEX pools, and structured products, creating recursive yield loops.
• Yield Fragility: This creates deep interdependencies; a failure in one AVS could cascade through the entire LRT DeFi stack.

Staked assets like ETH are locked and unproductive, creating a massive opportunity cost for DeFi users. This leads to fragmented liquidity and inefficient capital deployment across chains.

• $100B+ in staked ETH is currently non-composable.
• Forces users to choose between security (staking) and yield (DeFi).
• Limits leverage and derivative strategies for the largest asset class.

Tokens like Lido's stETH and Rocket Pool's rETH unlock staked capital, turning a static asset into a yield-bearing, composable building block. This is the foundational layer.

• Enables simultaneous staking yield and DeFi farming.
• Creates a universal collateral standard across Aave, Compound, and MakerDAO.
• Drives ~$40B+ TVL in the LST sector alone.

Protocols like EigenLayer and Kelp DAO introduce restaking, allowing LSTs to secure additional services (AVSs) for extra yield. This creates a new yield stack: Base Staking Yield + DeFi Yield + Restaking Yield.

• Unlocks trust-minimized security-as-a-service.
• Fuels the next wave of middleware and L2s.
• Represents the $15B+ restaking sector's core value proposition.

The complexity of managing multiple yield sources (staking, farming, restaking) creates demand for automated strategies. Platforms like Pendle Finance and EigenPie abstract this into tokenized yield vaults.

• Users access optimized, auto-compounding yield without active management.
• Builders can create structured products and derivatives on future yield.
• Enables risk-tiered products for conservative and leveraged investors.

Composability creates interconnected risk. A failure in a major LST (e.g., slashing event) or restaking protocol could cascade through DeFi lending markets and derivative layers.

• Smart contract risk is now coupled with consensus-layer risk.
• Creates new attack vectors for economic exploits.
• Demands rigorous risk-assessment frameworks from builders and underwriters.

The winner isn't another LST. It's the protocol that best integrates the existing LST/LRT stack. Build applications that leverage this new primitive for specific use cases: cross-margin accounts, yield-optimized stablecoins, or intent-based settlement.

• Integrate multiple LSTs/LRTs for diversification.
• Design for modular slashing insurance.
• Build for the multi-chain future with LayerZero and CCIP.