Native Restaking vs Liquid Restaking Tokens (LRTs): Core Model

Direct exposure to protocol rewards: Earn base staking yield + EigenLayer AVS rewards directly on your principal. This matters for large holders (e.g., whales, DAO treasuries) who prioritize maximizing raw yield and don't need liquidity.

No smart contract risk beyond EigenLayer: Your ETH is secured by Ethereum's consensus and EigenLayer's slashing conditions. This matters for risk-averse institutions (e.g., regulated funds) who want the simplest, most audited security model for restaking.

Unlock value of staked assets: Receive a liquid token (e.g., ezETH, rsETH, pufETH) that can be used as collateral in DeFi protocols like Aave, Maker, or Pendle. This matters for active DeFi users who need to maintain leverage, provide liquidity, or hedge positions while earning restaking rewards.

Professional AVS selection and risk management: LRT protocols (e.g., Renzo, Kelp DAO) manage the complex task of selecting and monitoring EigenLayer operators and AVSs. This matters for passive restakers who want exposure to the ecosystem without the operational overhead of managing slashing risks.

Direct Stake Utilization: Your staked ETH is used natively as cryptoeconomic security, avoiding the capital dilution of a secondary token layer. This matters for protocols like EigenDA or Omni Network that require maximum slashable stake for security guarantees.

Full Slashing Enforcement: Operators and AVSs interact directly with the EigenLayer smart contracts, enabling precise, automated slashing logic. This is critical for high-stakes bridges (e.g., Lagrange) or oracles where security failure consequences are severe.

Unlocked Capital: Holders receive a liquid token (e.g., ezETH, Kelp DAO's rsETH) that can be used across DeFi (lending on Aave, collateral on Maker, LP on Pendle). This matters for funds and traders who need yield exposure without locked capital, enabling strategies like LRT-ETH yield looping.

Operator Management Abstraction: Protocols like Eigenpie or Renzo handle node operator selection, reward distribution, and AVS diversification. This matters for passive restakers and institutions who want exposure to restaking yield without the technical overhead of direct delegation.

High Overhead: Requires active management of operator selection, reward claiming, and AVS risk assessment. This is a con for developers or DAOs who lack the resources to continuously monitor a validator set and manage direct smart contract interactions.

Smart Contract & DeFi Dependency: Introduces reliance on the LRT protocol's integrity and the stability of its token's peg. A depeg event (like we've seen with LSTs) or a bug in protocols like Renzo or Ether.fi could lead to losses independent of the underlying restaked position.

Direct Security Integration: Stake ETH natively to EigenLayer smart contracts to secure Actively Validated Services (AVSs) like EigenDA, AltLayer, and Hyperlane. This matters for protocols prioritizing maximized security and direct slashing risk.

Simplified Risk Model: Operators and delegators face slashing conditions defined directly by the AVS. This matters for users who prefer transparent, non-diluted risk assessment without intermediary token mechanics.

Capital Efficiency & Liquidity: Protocols like Ether.fi (eETH), Renzo (ezETH), and Kelp DAO (rsETH) issue a liquid token representing staked positions. This matters for DeFi users who need composability (e.g., using eETH as collateral on Aave, Pendle) while earning restaking rewards.

Automated Strategy Management: LRT providers (e.g., Puffer, Swell) handle AVS selection, operator delegation, and reward compounding. This matters for users seeking a hands-off, diversified exposure to the restaking ecosystem without active management.

Capital Lockup & Illiquidity: Staked ETH is locked and non-transferable, creating opportunity cost. This is a critical trade-off for traders or DeFi participants who require asset mobility.

Protocol & Depeg Risk: LRTs introduce an additional layer of smart contract risk from providers (e.g., Renzo) and potential price divergence from underlying ETH (e.g., ezETH depeg events). This matters for risk-averse stakers.

Slashing is direct and deterministic: Validator misbehavior results in an immediate, non-disputable penalty to the staked ETH. This provides the highest security guarantee for Actively Validated Services (AVS) like EigenLayer, as the economic stake is natively at risk. Ideal for protocols where security is non-negotiable.

Eliminates intermediary smart contract risk: Users interact directly with the Ethereum consensus layer and the AVS. There is no dependency on the security or solvency of an LRT protocol's tokenomics or smart contracts. This is critical for institutional validators managing large stakes who cannot accept additional counterparty risk.

Unlocks liquidity from staked capital: By minting a liquid token (e.g., ezETH, rsETH, Kelp's rsKLP), users can deploy capital in DeFi while still earning restaking rewards. This enables leveraged yield strategies on platforms like Aave, Curve, or Pendle. Essential for yield-optimizing DAOs and active traders.

Democratizes access and spreads risk: Users can participate with any amount of ETH (not 32) and gain exposure to a basket of AVSs managed by the LRT provider (e.g., EigenPie, Renzo). This reduces the operational burden and research overhead for the end-user. Best for retail participants and portfolios seeking diversified yield.

High opportunity cost: Staked ETH and restaking points are illiquid and cannot be redeployed. This creates a significant trade-off for validators who could otherwise use that capital for other yield-generating activities. A major drawback for funds focused on total portfolio return.

Introduces new smart contract and peg risks: Users are exposed to the LRT protocol's security (e.g., Renzo, Swell) and must trust its AVS selection and reward distribution. The LRT token can trade at a discount or premium to its underlying NAV, as seen during market stress. A critical consideration for risk-averse capital.