But occasionally a big trend comes along. That seems to be happening now, with “liquid restaking protocols” and their “liquid restaking tokens” or LRTs suddenly drawing in billions of dollars. CoinDesk’s Sam Kessler weighs in on the phenomenon in this week’s feature.
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BASE VS. BITCOIN? A series of posts appeared on the social-media platform X complaining that the U.S. crypto exchange Coinbase’s online payment protocol, Coinbase Commerce, didn’t allow payment from self-custody bitcoin (BTC) wallets. CEO Brian Armstrong replied that executives at the company “believe paying with crypto is going to primarily happen on layer 2 in the future and we want to help make that happen.” He added that “I think the market for people paying for everyday items on layer 1 will be pretty small, regardless of what chain (maybe other than Solana).” Currently, the fastest checkout on the company’s online payment protocol, Coinbase Commerce, is “with any ERC-20 on layer 2 (Base, Polygon, etc),” Armstrong wrote. “This includes Ethereum, USDC, wrapped Bitcoin and thousands of ERC-20 tokens.” Base, of course, if Coinbase’s own layer-2 network atop Ethereum, launched last year with much fanfare. Within a couple hours of Armstrong’s posts, Lauren Dowling, product lead for Coinbase Commerce, chimed in to explain that “the product is evolving,” and “the new Commerce product enforces the details of each payment onchain, supports hundreds of assets (native and ERC-20s) across Base, Polygon and Ethereum, & automatically converts payments to USDC onchain at a guaranteed rate to merchants.” Delivering the capabilities on the Bitcoin blockchain “without smart contracts and stablecoins was challenging & we therefore made the difficult decision to remove native Bitcoin & other UTXO support.” According to Dowling, customers can still pay in bitcoin from their Coinbase accounts. At least one notable bitcoiner, Udi Wertheimer of the Taproot Wizards project, came to Coinbase’s defense: “When brian armstrong and Coinbase say that the payment UX with bitcoin is bad, they know what they’re talking about.”
RESTAKING NARRATIVE: In a sign of just how hot “liquid restaking protocols” have become among crypto speculators, the new blockchain projects are hitting major money milestones within weeks of their launches. Liquid restaking protocol Puffer passed the mark of $1 billion in deposits on Tuesday, according to DefiLlama, fewer than three weeks after opening to users on Feb. 1. Meanwhile Kelp DAO, the third-largest liquid restaking protocol, introduced the KEP or “kelp earned points” token, allowing users to trade the otherwise illiquid EigenLayer points and rewards. What appears to be at the heart of it all is crypto “points farming” – essentially traders trying to score points doled out by the projects to early users; the theory is that these points will entitle them to receive tokens in an eventual airdrop; the risk is that these promises are kept quite vague.
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Liquid Restaking Tokens or ‘LRTs’ Revived Ethereum DeFi. Can the Hype Last?
Decentralized finance on Ethereum is seeing a big resurgence, with the familiar promise of high yields returning thanks to a new breed of crypto asset: “liquid restaking tokens,” or LRTs.
In the past month alone, billions of dollars have flooded into new Ethereum-based liquid restaking projects like Ether.Fi and Puffer, each with their own LRTs. The upstart platforms are in a heated turf battle to supplant Lido’s staked ETH (stETH) token as the asset of choice for decentralized finance (DeFi) traders.
The entire trend pivots off the development of a new protocol named EigenLayer, which launched a first-of-its-kind “restaking” system to Ethereum last June. The platform is building a solution to let blockchain apps and networks borrow Ethereum’s security system, and it drew more than $1 billion in new deposits in a single 24-hour period this month. Now, the total amount is over $7 billion, meaning the platform has singlehandedly amassed more than 1.5% of all ether (ETH) tokens in circulation, according to DefiLllama.
These liquid restaking platforms serve as middlemen between users and EigenLayer: The platforms “restake” user deposits with EigenLayer, and they hand out newly generated LRTs in exchange – so users can keep trading even if their deposits are being used for restaking.
Fundraisings, deals and grants
Regulatory, Policy and Legal
Billions of dollars keep flowing into the recently approved spot bitcoin ETFs – earmarked to purchase BTC. Some analysts are starting to map out where all of those bitcoins might come from. Alex Leishman, CEO of the bitcoin-focused financial firm River, tweeted a chart suggesting that the spot bitcoin ETF flows could amount to nearly 1 million BTC within a year – for a cryptocurrency whose supply is capped at 21 million, and the vast majority of that already mined. Gemini’s Cameron Winklevoss tweeted that “Bitcoin ETFs are taking 10x more bitcoin off the market than are being minted daily,” and if the inflows hold up through this year’s quadrennial mining-rewards halving, expected in April, “then bitcoin ETFs will be taking 20x more.” The crunch might get even more severe if bitcoin’s price move past $50,000 draws in more retail punters. “BTC reclaiming the critical $50K mark will also entice sidelined investors to reconsider their BTC positioning leading up to the halving,” analysts at Galaxy Digital’s wrote. River’s Leishman provided a schematic purporting to show various categories of bitcoin owners, and their holdings: