Have you ever wondered what happens to your ETH when you stake it on a platform that offers additional rewards or services? You may have heard of terms like restaking, liquid staking, or liquid restaking, but what do they mean, and why are they important?

Restaking is the process of staking your ETH on a platform that gives you more than just the regular staking rewards. For example, you can restake your ETH on EigenLayer, a platform that provides access to various decentralized applications (dApps) and services, such as lending, borrowing, insurance, and gaming. By restaking your ETH on EigenLayer, you can enjoy the staking rewards and the benefits of the dApps and services.

However, restaking also comes with some challenges. One of the main challenges is the lack of liquidity and flexibility. When you restake your ETH, you lose the ability to use it for other purposes, such as trading, investing, or spending. You also have to deal with high fees and long waiting times when you want to withdraw your restaked ETH. This is where Kelpdao and rsETH come in.

What is KelpDao?

Source: Kelpdao website

KelpDao is a collective DAO designed to unlock liquidity, DeFi, and higher rewards for restaked assets. KelpDao was founded by Amitej G and Dheeraj B, who have previously founded Stader Labs, a multi-chain liquid staking platform. With a total value locked (TVL) of $183.44 million, the team is focused on building liquid restaking solutions for public blockchain networks such as Ethereum, Polkadot, and Cosmos.

KelpDao’s main product is rsETH, a liquid restaked token (LRT) that represents fractional ownership of restaked ETH and its rewards. rsETH is built on EigenLayer, a platform that provides access to various decentralized applications (dApps) and services, such as lending, borrowing, insurance, and gaming, for restaked assets.

KelpDao’s vision is to create a more efficient and inclusive restaking ecosystem where restakers can enjoy both the staking rewards and the benefits of the dApps and services while also having liquidity and flexibility for their restaked assets. KelpDao also aims to empower its community members to participate in the governance and decision-making of the DAO and to share in the value creation and distribution of the DAO.

What is Restaking?

Restaking is the process of staking the same tokens on the main blockchain and other protocols, securing multiple networks at once. Restaking offers users additional rewards for securing additional protocols in exchange for undertaking increased slashing risks.

To understand what restaking is, we need to first understand what staking is. Staking is the process of locking or depositing tokens on a proof-of-stake (PoS) blockchain, such as Ethereum, to participate in the network’s consensus mechanism and earn rewards. Staking plays a pivotal role in securing a PoS blockchain, as the security level of the network depends on the number of active validators, the percentage of the total circulating tokens that are staked, and how these tokens are spread across active validators.

However, staking also comes with some limitations. One of the main limitations is the lack of liquidity and flexibility. When users stake their tokens, they lose the ability to use them for other purposes, such as trading, investing, or spending. They also have to deal with high fees and long waiting times when they want to withdraw their staked tokens.

Restaking solves this problem by allowing users to stake the same tokens on the main blockchain and other protocols. One is EigenLayer, a platform that provides access to various decentralized applications (dApps) and services, such as lending, borrowing, insurance, and gaming, for restaked assets. By restaking their tokens, users can enjoy both the staking rewards and the benefits of the dApps and services while having liquidity and flexibility for their restaked tokens.

Restaking is more profitable and beneficial for ETH holders than staking because it enables them to leverage their staked ETH to secure multiple networks and earn multiple rewards. For example, if a user restakes their ETH on EigenLayer, they can receive rewards from both the Ethereum network and the EigenLayer network, as well as from the dApps and services that they use on EigenLayer. This way, they can maximize their returns and utility from their staked ETH.

Restaking is also beneficial for the restaking protocols and the dApps and services that they support because it allows them to borrow the security and trust of the main blockchain, such as Ethereum, without needing to establish their own validator sets or token economies. This reduces the start-up cost and complexity of launching new protocols and applications on the blockchain and increases their adoption and innovation potential.

Restaking Ecosystem

The restaking ecosystem consists of various actors and components that interact with each other to enable restaking. The main actors are:

• Restakers: Users who stake their ETH on the main blockchain and restake it on other protocols, such as EigenLayer, to secure multiple networks and earn multiple rewards.
• AVSs: Additional Value Services, such as dApps and services, that offer restakers additional benefits and incentives for restaking their ETH on their platforms.
• Operators: Entities that run and maintain the restaking protocols, such as Kelpdao and EigenLayer, and ensure their security and functionality.

The main components are:

• Restaked tokens: Tokens that represent the restaked ETH and its rewards on the restaking protocols, such as stETH or ETHx.
• Liquid restaked tokens: Tokens that represent fractional ownership of restaked tokens and their rewards and can be used on any DeFi platform or protocol, such as rsETH.
• Restaking contracts: Smart contracts that manage the minting and redeeming of restaked tokens and liquid restaked tokens and distribute and manage the restaked assets and rewards.

Benefits and Challenges of Restaking Ecosystem

The restaking ecosystem offers various benefits and challenges for the different actors and components involved. Some of the benefits are:

• For restakers: Restakers can enjoy higher returns and utility from their staked ETH, as they can secure multiple networks and earn multiple rewards, as well as access and use various dApps and services. They also have liquidity and flexibility for their restaked ETH, as they can swap and leverage their liquid restaked tokens on any DeFi platform or protocol.
• For AVSs: AVSs can attract more users and capital to their platforms, as they can offer restakers additional benefits and incentives for restaking their ETH on their platforms. They also have lower barriers to entry and innovation, as they can borrow the security and trust of the main blockchain without needing to establish their own validator sets or token economies.
• For operators: Operators can create and capture value from the restaking ecosystem, as they can charge fees for providing restaking services and solutions and share the value creation and distribution with their community members.

Some of the challenges are:

• For restakers: Restakers have to undertake increased slashing risks, as they are staking on multiple networks at once, and any misbehavior or failure on one network can affect their stake on another network. They also have to deal with potential technical, economic, and regulatory risks, such as bugs, hacks, exploits, volatility, taxation, and compliance, that may arise from using restaking protocols and liquid restaked tokens.
• For AVSs: AVSs have to compete with other AVSs for restakers’ attention and loyalty, as restakers have many options and choices for restaking their ETH on different platforms. They also have to ensure the quality and reliability of their dApps and services, as restakers expect high standards and performance from the platforms on which they restake their ETH.
• For operators: Operators have to ensure the security and functionality of their restaking protocols and liquid restaked tokens, as any breach or malfunction can result in loss of funds or reputation for themselves and their users. They also have to cope with the complexity and uncertainty of the restaking ecosystem, as it involves multiple actors and components and is constantly evolving and changing.

What is rsETH?

Source: Kelpdao website

rsETH is a liquid restaked token (LRT) that represents fractional ownership of restaked ETH and its rewards. rsETH is built on Kelpdao, a decentralized autonomous organization (DAO) that aims to unlock liquidity, DeFi, and higher rewards for restaked assets.

rsETH differs from other restaked tokens, such as stETH or ETHx, in several ways. First, rsETH is not tied to any specific restaking platform but can represent any restaked ETH token, such as stETH or ETHx. This means that rsETH holders can benefit from the best restaking platforms available without being locked into one platform.

Second, rsETH is fully liquid and compatible with any DeFi platform or protocol, such as Uniswap, Aave, or Compound. This means that rsETH holders can swap and leverage their rsETH on any platform without losing their restaking rewards or benefits.

Third, rsETH is governed by Kelpdao and its community members, who can participate in the decision-making and value distribution of the DAO.

How Does rsETH Work?

Source: Kelpdao website

rsETH works by using smart contracts to manage the minting and redeeming of rsETH with restaked ETH and to distribute and manage the restaked assets and rewards. The main contracts that power rsETH are:

Deposit Pool

This contract allows users to deposit their restaked ETH tokens, such as stETH or ETHx, and mint rsETH in return. The contract also allows users to redeem their restaked ETH tokens by burning their rsETH. The contract maintains a 1:1 ratio between the restaked ETH tokens and rsETH, ensuring that each rsETH represents one restaked ETH token and its rewards.

Node Delegator

This contract distributes the restaked ETH tokens from the deposit pool to the node operators who run and maintain the restaking protocols. The contract also collects the staking and restaking rewards from the node operators and sends them to the reward market contract.

Reward Market

This contract allows users to swap their rsETH for other tokens on AMMs, such as Uniswap, or use their rsETH as collateral on lending platforms, such as Aave. The contract also distributes the rewards to the rsETH holders, proportional to their rsETH balance.

Withdrawal Manager

This contract handles withdrawal requests from users who want to redeem their restaked ETH tokens. The contract ensures that the users receive their restaked ETH tokens and rewards within a reasonable time frame without affecting the liquidity and stability of the rsETH market.

How to use rsETH

Using rsETH is easy and convenient, thanks to the Kelp dApp, a user-friendly interface that allows users to mint and redeem rsETH with restaked ETH and to view and manage their rsETH balance and rewards. The Kelp dApp also provides users with access to various DeFi platforms and protocols, where they can swap and leverage their rsETH for other tokens and opportunities.

To access and interact with the Kelp dApp, users need to follow these simple steps:

• Connect a web3 wallet, such as MetaMask, to the Kelp dApp. The wallet should have some ETH and restaked ETH tokens, such as stETH or ETHx, to mint rsETH.

• Choose the restaked ETH token that they want to deposit, and enter the amount that they want to mint. The dApp will show the current exchange rate and the amount of rsETH that they will receive.

• Confirm the transaction and wait for it to be processed. The dApp will show the transaction status and the confirmation time.

• Once the transaction is confirmed, the user will see their rsETH balance and rewards on the dApp dashboard. They can also view their transaction history and details on the dApp.

rsETH Tokenomics

rsETH tokenomics is designed to align the incentives and interests of the different actors and components involved in the restaking process, such as restakers, AVSs, operators, and Kelpdao.

rsETH is created by minting rsETH with restaked ETH tokens, such as stETH or ETHx, on the Kelp dApp. The minting process is governed by the deposit pool contract, which maintains a 1:1 ratio between the restaked ETH tokens and rsETH, ensuring that each rsETH represents one restaked ETH token and its rewards. The minting process is also subject to a minting fee, which is charged by Kelpdao for providing the restaking service and solution.

rsETH is distributed to the restakers who mint rsETH with their restaked ETH tokens and to the Kelpdao community members who participate in the governance and decision-making of the DAO. The distribution process is governed by the reward market contract, which distributes the staking and restaking rewards to the rsETH holders, proportional to their rsETH balance, and the Kelpdao governance token (KELP) to the rsETH holders who stake their rsETH on the Kelp dApp.

rsETH is used by the restakers who swap and leverage their rsETH on various DeFi platforms and protocols, such as Uniswap, Aave, or Compound, and by the AVSs who offer restakers additional benefits and incentives for using their rsETH on their platforms. The usage process is governed by the reward market contract, which allows users to swap and leverage their rsETH on any DeFi platform or protocol without losing their restaking rewards or benefits, and by the AVSs’ contracts, which provide users with access and utility for their rsETH.

rsETH tokenomics is aligned with the interests of the restaking ecosystem, as it creates a positive feedback loop that benefits all the actors and components involved. For example, the more restakers mint rsETH with their restaked ETH tokens, the more liquidity and security the restaking ecosystem has, the more rewards and benefits the restakers and the AVSs receive, the more value and governance the Kelpdao and the operators create and capture, and the more demand and utility the rsETH has.

Benefits of rsETH

rsETH offers various benefits for the different actors in the restaking ecosystem, such as restakers, AVSs, and operators.

Benefits of rsETH for Restakers

Source: Kelpdao website

Restakers can benefit from rsETH in several ways, such as:

• Liquidity: Restakers can mint and redeem rsETH with restaked ETH at any time, without any waiting period or penalty. They can also swap their rsETH for other tokens on AMMs, such as Uniswap, or use their rsETH as collateral on lending platforms, such as Aave. This gives them liquidity and flexibility for their restaked ETH and allows them to take advantage of market opportunities and price movements.
• Rewards: Restakers can receive both the Ethereum staking and restaking rewards, as well as the rewards from the dApps and services that they use on EigenLayer. The rewards are automatically distributed to rsETH holders, proportional to their rsETH balance. This gives them higher returns and utility from their staked ETH and incentivizes them to restake more ETH on the restaking protocols.
• Flexibility: Restakers can choose the best restaking platform for their needs, as rsETH can represent any restaked ETH token, such as stETH or ETHx. They can switch between different restaking platforms without losing their rsETH balance or rewards. This gives them more options and choices for restaking their ETH and allows them to optimize their restaking strategy and performance.
• Governance: Restakers can have a say in the direction and development of Kelpdao and rsETH, as they can vote on proposals and initiatives and share the value creation and distribution of the DAO. This gives them more control and influence over the restaking ecosystem and aligns their interests with the interests of the DAO.

Benefits of rsETH for AVSs

Source: Kelpdao website

AVSs can benefit from rsETH in several ways, such as:

• Attraction: AVSs can attract more users and capital to their platforms, as they can offer restakers additional benefits and incentives for using their rsETH on their platforms. For example, an AVS can offer a higher interest rate, a lower fee, or a bonus reward for rsETH holders who use their service. This gives them a competitive edge and differentiation in the restaking ecosystem and increases their adoption and growth potential.
• Innovation: AVSs can innovate and experiment with new dApps and services for rsETH holders, as they can borrow the security and trust of the main blockchain without needing to establish their own validator sets or token economies. For example, an AVS can create a new game, insurance product, or governance model for rsETH holders. This reduces the start-up cost and complexity of launching new dApps and services on the blockchain and increases their innovation and diversity potential.
• Integration: AVSs can integrate and collaborate with other AVSs and DeFi platforms and protocols, as rsETH is fully compatible and interoperable with any DeFi platform or protocol. For example, an AVS can integrate their service with Uniswap, Aave, or Compound and offer rsETH holders more options and opportunities for swapping and leveraging their rsETH. This enhances the network effect and value proposition of the restaking ecosystem and increases their integration and collaboration potential.

Benefits of rsETH for Operators

Source: Kelpdao website

Operators can benefit from rsETH in several ways, such as:

• Creation: Operators can create and capture value from the restaking ecosystem, as they can charge fees for providing restaking services and solutions and share the value creation and distribution with their community members. For example, Kelpdao charges a minting fee for rsETH and distributes the Kelpdao governance token (KELP) to rsETH holders who stake their rsETH on the Kelp dApp. This gives them a revenue stream and a value proposition in the restaking ecosystem and increases their creation and capture potential.
• Edge: Operators can have a competitive edge and differentiation in the restaking ecosystem, as they can focus on the niche but growing market of restaking, which has not been adequately addressed by other solutions. For example, Kelpdao and EigenLayer offer a unique and innovative way of accessing and using restaked assets and creating a single token, rsETH, representing any restaked ETH token. This gives them a market fit and a customer base in the restaking ecosystem and increases their edge and differentiation potential.
• Governance: Operators can empower and engage their community members to participate in the governance and decision-making of their restaking protocols and to share the value creation and distribution of their protocols. For example, Kelpdao and EigenLayer allow their community members to vote on proposals and initiatives and to receive rewards and benefits for their contributions and participation. This gives them a loyal and active community in the restaking ecosystem and increases their governance and engagement potential.

Risks and Challenges of rsETH

rsETH is a novel and innovative solution for restaking, but it also comes with some risks and challenges that rsETH users should be aware of and prepared for. Some of these risks and challenges are:

Technical Risks

rsETH relies on smart contracts to manage the minting and redeeming of rsETH with restaked ETH and to distribute and manage the restaked assets and rewards. These smart contracts are subject to potential bugs, hacks, exploits, or failures that may result in the loss of funds or reputation for rsETH users. For example, a malicious actor may find a vulnerability in the rsETH contracts and drain the funds from the deposit pool or the reward market, or network congestion may delay the withdrawal requests from the rsETH users.

Economic Risks

rsETH is subject to market fluctuations and volatility, as the price of rsETH is determined by the supply and demand of rsETH on the market, as well as the value of the underlying restaked ETH tokens and rewards. These market factors may affect the profitability and utility of rsETH for rsETH users. For example, a sudden drop in the price of rsETH may cause rsETH users to lose money or face liquidation on their leveraged positions, or a low demand for rsETH may reduce the liquidity and availability of rsETH on the market.

Regulatory Risks

rsETH is subject to legal and regulatory uncertainty, as the status and treatment of rsETH and other restaked tokens are not clear or consistent across different jurisdictions and authorities. These legal and regulatory factors may affect the compliance and legitimacy of rsETH for rsETH users. For example, a change in the tax laws or the anti-money laundering rules may impose new obligations or restrictions on rsETH users, or a ban or crackdown on rsETH or other restaked tokens may prevent rsETH users from accessing or using rsETH.

Conclusion

In this article, we have explored Kelpdao and rsETH, a solution for restaking that offers liquidity, DeFi, and higher rewards for restaked assets. rsETH is a liquid restaked token (LRT) representing fractional ownership of restaked ETH and its rewards. rsETH users can enjoy the staking rewards and the benefits of the dApps and services while having liquidity and flexibility for their restaked ETH. rsETH also creates a positive feedback loop that benefits the restaking ecosystem, aligning the incentives and interests of the restakers, AVSs, and operators.

If you want to try rsETH, visit the Kelp dApp and start minting and redeeming rsETH with your restaked ETH tokens.