What is Liquid Restaking?
Liquid restaking is an advanced DeFi mechanism that allows users to stake their liquid staking tokens (LSTs) like stETH or rETH on additional protocols to earn multiple layers of yield simultaneously. This innovation builds upon both liquid staking and restaking concepts, creating a composable yield stack where a single underlying asset generates returns from multiple sources.
The concept emerged with protocols like EigenLayer, which enables ETH stakers to restake their assets to secure additional services called Actively Validated Services (AVS). Liquid restaking takes this further by accepting liquid staking tokens as collateral, meaning users can maintain liquidity through the LST while earning base staking rewards plus additional restaking yields.
How it Works
The liquid restaking flow begins with an underlying staked asset. When you stake ETH through Lido, you receive stETH representing your staked position plus accruing rewards. Instead of simply holding stETH, you can deposit it into a liquid restaking protocol like Ether.fi, Renzo, or Kelp DAO.
These protocols then restake your LST on EigenLayer or similar restaking infrastructure. In return, you receive a liquid restaking token (LRT) like eETH, ezETH, or rsETH. This LRT represents your claim on the underlying stETH plus any additional restaking rewards and points.
The yield stack now includes: base ETH staking rewards (3-4% APY), potential AVS rewards from restaking, protocol points that may convert to token airdrops, and the ability to use your LRT in DeFi for additional yield. Some users deposit LRTs into lending protocols or liquidity pools, creating four or more simultaneous yield sources.
Practical Example
You deposit 10 ETH into Ether.fi's liquid restaking protocol. Ether.fi stakes your ETH and provides you with eETH, a liquid restaking token. Your 10 eETH earns Ethereum staking rewards, accrues EigenLayer points, earns Ether.fi loyalty points, and remains liquid for DeFi use. You could then supply eETH to Pendle to separate and trade the yield component, adding another layer of returns.
Why it Matters
Liquid restaking represents the cutting edge of yield optimization in DeFi, enabling capital efficiency that was previously impossible. By stacking multiple yield sources on a single asset while maintaining liquidity, users can significantly enhance returns compared to simple staking. However, this comes with compounded smart contract risk across multiple protocols. Fensory tracks liquid restaking opportunities and helps you understand the risk-adjusted returns of different LRT strategies across the ecosystem.