More people are talking about points programs, for better or worse, with EigenLayer’s program being one of the most prominent. With a $50M raise during the bear and a highly anticipated high-FDV token, many are excited about EigenLayer and all the restaking opportunities alongside it.
In today’s edition, we’ll be briefing you on Kelp DAO, a liquid restaking project which aims to make EigenLayer more accessible while also allowing depositors to stack rewards by earning both KELP and EIGEN points.
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Background on Liquid Restaking
Users currently use LSTs and participate in DeFi.
With the emergence of restaking, users will have to choose between restaking or DeFi.
This creates a conflict as users cannot have the best of both worlds.
Restaking imposes unbonding periods and unstaking conditions based on EigenLayer AVS (Actively Validated Services) requirements.
AVS refers to any application or layer-2 rollup app chain that seeks decentralized security from EigenLayer.
Applications require economic security, which EigenLayer helps abstract away, allowing them to focus on their use case.
During the unbonding period, users who restake their LSTs or Ethereum will have no liquidity.
This presents a significant problem created by liquid staking.
There is expected to be an explosion of AVS applications in the future.
Potentially, there could be 50+ or even hundreds of different types of applications and infrastructure players.
These applications will reward users with their own tokens, $ETH, stablecoins, etc.
Claiming these rewards can be cumbersome due to high gas costs and the variety of tokens involved.
The goal of Kelp DAO was to create a single receipt token that gives users access to staking and restaking rewards, liquidity, and participation in DeFi.
The $rsETH token eliminates the complexity of claiming various reward tokens given by AVS applications.
This design addresses the problems faced by average users when choosing between staking and restaking.
Background on Kelp DAO
Kelp DAO is a Liquid Restaking Solution (LRS) for public blockchain networks. Founded by Amitej G and Dheeraj B, who also founded Stader Labs, a multichain liquid staking platform, Kelp DAO focuses on enhancing liquidity and accessibility of staked assets.
The protocol is currently developing a notable LRS product, rsETH, on EigenLayer for Ethereum.
This product aims to convert illiquid assets, like staked Ethereum, into liquid restaked tokens (LRTs), thereby addressing the liquidity challenges in restaking platforms.
Kelp DAO, through its rsETH solution, enables restakers to gain instant liquidity, manage rewards efficiently, and leverage their assets in decentralized finance (DeFi), while also benefiting various stakeholders in the ecosystem, like validators and node operators, by streamlining their operations and reducing efforts in asset and reward management.
Why is Kelp DAO Interesting?
Kelp DAO stands out as an interesting protocol in the ecosystem, primarily due to its pioneering role in Liquid Restaking Solutions (LRS), an emerging trend seen as the next evolution of liquid staking.
Building on the successful track record of its founders’ previous venture, Stader Labs, Kelp DAO introduces innovative mechanisms to enhance the liquidity and utility of staked assets.
The protocol not only attracts users with its current rewards system, offering KELP and EIGEN points, but also holds potential for future growth with the speculated airdrops of $KELP and $EIGEN tokens.
This strategic positioning, combined with its first-mover advantage in the LRS domain and its alignment with DeFi trends, makes Kelp DAO a particularly interesting and potentially impactful player in the decentralized finance ecosystem.
Kelp has been live for over one month, and stands as one of the most successful EigenLayer ecosystem projects, with a TVL of $170M+.
Architecture of rsETH token
Dheeraj Borra says that $rsETH contracts are designed with one-way information flow for improved security.
The deposit pool holds different LSTs and has no functionality to exit funds.
He adds that No Delegated Contracts (NDCs) interact with the deposit pool, autonomously moving funds into I strategies.
Multiple NDCs are deployed, each corresponding to operators when they go live on EigenLayer.
Withdrawals will be implemented through another set of contracts that talk to EigenLayer via NDCs.
Kelp DAO went live on December 12th, 2023.
There has been a tremendous response from users who understand the value proposition of Kelp DAO.
Depositing LSTs allowed users to have a hands-off approach while relying on Kelp DAO's responsibility to move assets into different strategies.
Amit says that users have been depositing large amounts of ETH into Kelp, taking advantage of the opportunity to earn staking yield and leverage this functionality.
The project’s increase in liquidity is attributed to new participants entering the space and the realization that long-developed innovations are now exceeding expectations.
What happens when EigenLayer caps fill?
Amit says that for average DeFi users, $rsETH acts as their liquid restake token, similar to tokens $stETH by Lido.
By earning staking yield passively through Ethereum, users can still have a liquid asset that they can borrow against or use as liquidity providers.
Users depositing tokens like $stETH, and $rsETH, into EigenLayer are giving up their liquidity and negating the utility they once sought in those tokens.
He emphasizes the importance of making assets work harder for better returns and suggests that $rsETH is a logical choice for users who want to continue their DeFi activities.
Dheeraj says that even if the caps for deposits in EigenLayer are reached, users can still deposit their assets into Kelp.
Assets deposited in Kelp will be queued up for the next time the caps are raised, allowing users to continue participating and earning rewards.
He adds that there may be additional DeFi opportunities coming with $rsETH, indicating potential future developments.
Stacking rewards through Kelp's $rsETH
Dheeraj says that every $ETH deposited into EigenLayer earns 24 points per day.
There are no set caps or minimum limits for earning points.
On the Kelp side, every $ETH is worth 10,000 KELP points per day.
He adds that early adopters who have deposited since the launch receive a 25% boost on their KELP points.
Future EigenLayer airdrops for liquid restakers?
Dheeraj says that if EigenLayer becomes a security network for middleware players, holding $rsETH could potentially entitle users to future airdrops.
This makes ETHx the only collateral that realistically accepts EigenLayer points, providing an advantage for ETHx holders.
Coming DeFi integrations for rsETH
Amit mentions that having $rsETH provides immediate liquidity and DeFi opportunities.
Liquidity on platforms like Curve, Balancer, and others are available for $rsETH.
Exciting upcoming opportunities include partnerships with Pendle and other lending markets interested in onboarding $rsETH as collateral.
New support for more LSTs with rsETH
Dheeraj mentions that there is an internal framework being developed to determine what makes good collateral for Kelp.
Adding future LSTs to Kelp is part of the roadmap.
Native $ETH staking is still under consideration due to evaluating its market size and opportunity cost.
What's live & risks to know
Dheeraj says that users can access various features available on Kelp, such as depositing $stETH into Kelp contracts.
Withdrawals will be supported in February 2024.
All assets deposited into Kelp automatically move into EigenLayer.
Users can check the status of EigenLayer caps on the banner of Kelp's website.
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