Liquid Restaking Token (LRT)

A Liquid Restaking Token (LRT) is a derivative token that represents a user's restaked assets within a restaking protocol, providing liquidity for otherwise locked capital. It is the primary innovation that enables liquid restaking, a process where staked assets like ETH or Liquid Staking Tokens (LSTs) are re-delegated to secure additional networks or services (like Actively Validated Services (AVS)) while generating a tradable, yield-bearing token. This solves the core liquidity problem of traditional restaking, where assets are typically locked and illiquid for extended periods.

The mechanism works as follows: a user deposits a base asset (e.g., stETH or ETH) into a restaking protocol. The protocol then restakes these assets on their behalf to one or more Actively Validated Services (AVS). In return, the user receives newly minted LRTs (e.g., ezETH, rsETH) in a 1:1 ratio to the value of their deposit. These LRTs accrue the combined yield from the underlying staking and restaking activities. Crucially, the holder can freely trade, transfer, or use these LRTs as collateral in DeFi applications while the underlying assets continue to secure external networks.

LRTs unlock significant capital efficiency and new yield strategies. Holders can engage in a restaking flywheel: using LRTs as collateral to borrow assets, which can then be restaked again to mint more LRTs. This creates leveraged exposure to restaking yields. Furthermore, LRTs are foundational to the restaking ecosystem, as they allow Actively Validated Services (AVS) to bootstrap security by attracting liquidity from a shared pool of restaked assets, rather than requiring their own dedicated stake.

Key technical considerations for LRTs include depeg risk (the potential for the LRT's market price to deviate from its net asset value), slashing risk (potential loss of underlying value due to validator misbehavior on secured AVSs), and oracle dependency (relying on price feeds to accurately value the basket of underlying assets and rewards). Protocols mitigate these through mechanisms like redemption queues, slashing insurance, and over-collateralization in DeFi integrations.

A Liquid Restaking Token (LRT) is a derivative token that represents a user's restaked position, enabling them to provide security to multiple Actively Validated Services (AVS) while maintaining liquidity. The core mechanism begins when a user deposits a liquid staking token (e.g., stETH, rETH) or native ETH into an LRT protocol. The protocol's smart contracts then restake these assets via EigenLayer's restaking middleware, delegating them to one or more chosen node operators who run the software for various AVSs. In return for locking this capital, the user receives newly minted LRTs (e.g., ezETH, rsETH) in a 1:1 ratio to the value of their deposit, which they can freely trade, use as collateral, or deploy in other DeFi protocols.

The node operators are the active participants who run the validation software for the AVSs, such as new consensus layers, data availability layers, or oracle networks. They earn fees and rewards from these services. A portion of these rewards, after protocol fees, is accrued to the underlying value of the LRT. This creates a yield-bearing asset whose value is backed by the initial staked principal plus accumulated restaking rewards. The LRT protocol's role is to manage the technical complexity of operator selection, reward distribution, and slashing risk management, abstracting it away from the end-user.

Liquidity is the defining feature. Unlike natively restaked assets which are locked and non-transferable, LRTs are ERC-20 tokens that can be seamlessly integrated into the broader DeFi ecosystem. Holders can provide liquidity in Automated Market Makers (AMMs), use them as collateral to borrow on lending platforms, or engage in yield farming strategies—all while their underlying assets continue to secure multiple networks and generate rewards. This creates a capital efficiency feedback loop, where the same base capital secures additional services and simultaneously fuels decentralized finance applications.

The system incorporates critical risk management mechanisms. Slashing penalties for operator misbehavior are enforced by the underlying restaking layer (e.g., EigenLayer's slashing conditions). In such an event, the value of the corresponding LRTs can be reduced to cover the penalty, protecting the integrity of the secured services. LRT protocols often implement strategies like operator diversification (spreading stake across multiple operators) and AVS reward weighting to optimize for risk-adjusted returns. Users must assess the protocol's operator set, its governance, and the specific AVSs it supports, as these factors directly influence the security and yield profile of the LRT.

In practice, the workflow is: Deposit LST/ETH → Receive LRT → Underlying assets are restaked to operators → Operators validate AVSs → Rewards accrue to LRT value → User trades or uses LRT in DeFi. This mechanism decouples security provisioning from capital utility, solving a fundamental liquidity problem in proof-of-stake ecosystems. It allows the base security of Ethereum to be leveraged as a reusable trust layer for a new generation of decentralized infrastructure, with LRTs serving as the liquid, tradable representation of that economic commitment.