What are Eigenlayer & LRTs, and their Risks

One of the staking vaults Latch will be offering as a place to park your funds is Eigenlayer. If this is your first time hearing about restaking and Eigenlayer, you’re in the right place! Read on to learn more.

Eigenlayer: Maximizing Staked ETH Potential

Traditionally, staking ETH locks up your assets for a period of time in support of network security and consensus. Eigenlayer adds a powerful dimension to this process by enabling "restaking."

Simply put, it allows you to use the same staked tokens towards the support of another network security and processing of transactions (Eigenlayers). Terms like double dipping or eating your cake and having it too would be accurate as well.

This effectively means you can earn two separate APR’s (the Ethereum staking rate as well as the Eigenlayer staking rate) with the same tokens! It is important to note that as Eigenlayer continues its preparation for mainnet you will be earning Eigen Points, which can later be redeemed for rewards.

Restakers can choose where their tokens are “restaked” to by allocating ETH to any one of the AVS (actively validated services) each with its own reward and slashing policies (ie, you can lose money). Any AVS could have its own set of points, yields, and airdrops, leading to a dizzying amount of possibilities!

Websites like StakingRewards have a convenient dashboard, allowing you to view all AVS’ and compare them in one glance:

https://www.stakingrewards.com/assets/actively-validated-service

LRTs: Liquid Restaking Tokens

When you restake your ETH to Eigenlayer through Liquid Restaking Players (e.g. Ether.Fi), you receive Liquid Restaking Tokens (LRTs, eETH is Ether.Fi's LRT token). These tokens represent your position within the restaking system and serve as a means to continue accruing staking rewards. The "liquid" aspect of LRTs refers to the potential to trade them on decentralized exchanges.

Understanding the Risks

As with most crypto technologies, it's important to consider the potential risks involved:

• Smart Contract Risks: Complex code may contain vulnerabilities, even if thoroughly audited.

• Market Volatility: The fluctuating price of LRTs is subject to broader crypto market conditions, while typically having less liquidity then the underlying asset (which leads to price premiums).

• Slashing Penalties: In extreme cases, if the services your restaked ETH supports violate the validating rules, a portion of your stake could be lost as a penalty. As listed above, each AVS you choose to restake with also has their own slashing conditions as well.

• Rug pull: While we are more familiar with the term rug pull for pump and dump memecoins, there are cases of yield farms being rug pulls as well.