Introducing steakLRT
Today we’re launching the Steakhouse Resteaking Vault, a wstETH-based liquid restaking token powered by Mellow and the Symbiotic restaking middleware. This is a logical extension of the work we’re doing as Lido DAO’s Finance Workstream, as we prove out the crucial role that Lido stETH can play in helping restaking become more efficient, while preserving the decentralization of Ethereum.
The emergence of restaking brings the notion of a marketplace for decentralized trust to Ethereum. As we explored in our research report from April 2024, this makes it possible for new actively validated services (AVS’s), or decentralized networks, to emerge without having to invest substantial operational and capital resources in bootstrapping a new set of diverse validators.
A secure set of validators is crucial for delivering decentralized trust. From a cryptoeconomic security perspective, the only value proposition to a secured network really is its censorship resistance. Decentralized networks tradeoff latency, transaction speed, execution complexity and many other features of modern databases, in exchange for the one value that is impossible to obtain from a centralized database: neutrality. Therefore, providing a marketplace for new networks to inherit security from Ethereum’s validator set is a huge efficiency improvement to new projects having to spin up new validator sets.
However, restaking is still in an incipient, experimental phase. The challenge will be to find a way to operate restaked networks without compromising on the decentralization of Ethereum validation.
Our goal with steakLRT is to prove to other LRT issuers that wstETH is a superior liquid asset buffer for restaking, and to grow the utility of stETH.
Symbiotic Resteaking
Early designs for restaking propose quite vertically integrated architectures, with a single counterparty owning or operating the stack all the way from network to validator. This allows opinionated, centralized decision-making about parameters for users - for instance, what types of collateral to accept or not.
Symbiotic improves on this design by proposing a modular, permissionless, architecture.
This is similar to our vision for permissionless primitives in on-chain repo markets, such as Morpho. Crypto has a ruthless way of disintermediating excessive concentration. What Morpho is doing to the lending space, Symbiotic can do for restaking. While we believe in a vision of marketplaces for decentralized trust, we also believe that the best implementations will be truly permissionless – no multisigs, no opinionated constraints on users and no centralized dependencies.
Mellow LRTs
Mellow is a vault architecture that sits on top and provides the ability for curators to design and create their own LRTs. This is the end-state of restaking, in our view, as it allows curators to focus on AVS selection and liquidity allocation, rather than have to think about the complexities of native staking.
SteakLRT is a Mellow LRT curated by Steakhouse Financial. By relying on wstETH as the base asset, steakLRT exposes its restakers at a minimum to the Ethereum staking rate and contribute to the decentralization of Ethereum validation.
At launch, our vault will allocate entirely to the default strategy, which is empty for the time being. Over time, as restaked networks come online, we will propose new allocation strategies to our users, based on a risk assessment and due diligence framework we will make publicly available for steakLRT holders.
Mellow LRTs will be inherently illiquid - this is consistent with our view that, for liquid restaking tokens, liquidity and moneyness are not actually salient features. Every restaked network will come with some duration, meaning user collateral may be held for some time before being able to withdraw. Mellow LRTs should process withdrawals roughly once a day and Symbiotic offers a permissionless exit feature no matter what within 90 days.
Over time, we hope to increase the permissionlessness of these LRTs, in the same way that we made our MetaMorpho vaults permissionless. This means empowering LRT users through an Aragon DAO, removing levers for discretionary decision-making and increasing timelocks where relevant. In any case, users remain in control of their collateral.
Lido stETH as collateral
The choice of steakLRT collateral is wstETH (wrapped Lido staked ETH). There are practical and ideological reasons for choosing wstETH as collateral.
The practical reason is that stETH is the most popular and liquid collateral in DeFi. Reward-bearing collateral is more capital-efficient for users. This has led to stETH (shown in blue line) overtaking ETH (shown in gray line) to become top collateral in Ethereum. We believe slashing risks for stETH are also lower than other forms of staking due to the counterparty (node operators) diversification, as well as any potential losses being socialized with stETH’s large TVL base.
Source: Dune Analytics (@pipistrella)
stETH’s ample liquidity also makes the asset an attractive collateral. Our data shows that there is >$600m of liquidity pools available, including on various L2’s, making swaps low-friction for restakers and AVS’s alike.
The ideological reason for choosing stETH as restaking collateral is for preserving Ethereum decentralization. As noted earlier, the current restaking infrastructure contains designs that contribute to centralization, particularly at the LRT level. Most LRTs partner with at most, a few node operators, for validation. As the power law forces a few dominant LRTs and their node operators to gain share, Ethereum validation could witness increasing centralization.
We subscribe to the view that decentralization of Ethereum is a key differentiator and the very feature that sets Ethereum apart from regular TradFi infrastructure. As the below HHI graph shows, Lido’s diversified node operator participation contributes positively to Ethereum’s decentralization. Therefore, we consider the use of stETH as restaking collateral essential for maintaining a decentralized Ethereum as LRTs gain market share.
