LSTs are delegation vouchers that show your participation the consensus of the network which has and these fungible assets have emerged as the biggest defi protocol to exist on any single VM with more than 35 Billion locked on eth and nearly 70% of total solana in circulation staked with liquid delegation voucher protocols. Markets price LST based on

$lst_value ∝ native_yield+ native_slashing_risk$

With the emergence of restaking and economic security as a meme, a new delegation voucher emerged called Liquid restaking token where a protocol would take the native eth or lst and delegate it to specified operators or members of the restaking protocol to get yield for the economic security it provides. ex Renzo, Puffer So LRT issuers are not just the asset issuing layer but also become the risk managers by deciding which operators they stake with the dapps they secure

$LRT_value ∝ AVS_yield + restaking_slashing + lst_value$

Now the risk causes the price to be at a discount from native assets.

LRTs have ballooned to around 13 Billion in TVL which shows the market apetite but there are around 10 different LRT protocols.

Now there are two different approaches ->

1. AAVE approach ->AAVE manages the risk of all the positions on its platform and in the situation of liquidiation allows users to liquidate position to keep of the bad debt from accuring the network where the losses are socialized. Mainly all the LRT protocols work the same way where they manage their own risk and try to keep bad debt of the balance sheet.

2. Morpho Way -> Allow any risk curator to use the framework, build their own vaults, and manage the risk like Mellow Finance did.

This introduces few new risks and options

• Restaking protocols and strategy managers want to secure blue chip AVS's who are less likely to get slashes This in turn leads to stake accumulation to very few projects

  • As stakes get accumulated, the same AVS can only provide so much yield and which leads to lower yield in turn maybe outflows.

    • Only secure the BLUE chip applications and stake/partner with good AVS to stake with them.

    • Launch their own node operator which is a good strategy, where lets say someone like figment has a big chunk of restaked eth and can launch their operator securing their own portfolio companies.

• Liquidity -> Post Renzo depeg we realized no matter what liquidity is the king but as more teams launch LRTs and form different delegation vouchers on top of restaking layers the fragmentation and arbitrage will get bigger. - One of the ways to solve this is by building a liquidity layer

• Fungibility ->The trend of bridging Liquid Restaking Tokens (LRTs) to Layer 2 networks (L2s) has gained popularity as a strategy to boost network activity. However, this approach has become somewhat formulaic, with many growth teams launching bridge-to-earn campaigns in anticipation of future airdrops. While these initiatives drive short-term engagement, they often lead to fragmented liquidity across multiple LRTs, each with its own risk profile and separate liquidity pool.One of the primary motivations for users to seek liquid delegation vouchers is to utilize them as collateral in DeFi applications. For instance, stETH has emerged as a leading DeFi collateral asset. However, when LRTs are scattered across various L2s with unbalanced pools and limited DeFi utility, they become nearly as illiquid as NFTs.

  Although bridging LRTs to different rollups has been an effective tactic for earning points, it significantly impairs overall liquidity. Lending markets on these sub-ecosystems struggle to support numerous delegation assets, resulting in users holding essentially useless LRTs across multiple rollups.This fragmentation ultimately undermines the core value proposition of LRTs, leaving users with tokens that lack meaningful utility or liquidity across disparate networks.

To solve all this a simple structure could be established

• User Deposits asset into different vaults, every vault is a different risk/strategy manager.

• If they give LRT, the risk can be redistributed according to strategy manager

• The asset is sent into a liquidity pool which can be used for borrowing and lending + becomes a buffer AMM for asset conversion.

• Users get yield for the AMM and a fungible asset across DeFi.

This prevents risk of liquidations and saves from depeg since the liqETh is a debt asset where native eth is the collateral not in USD terms but in native eth terms.

LSTs are delegation vouchers that show your participation the consensus of the network which has and these fungible assets have emerged as the biggest defi protocol to exist on any single VM with more than 35 Billion locked on eth and nearly 70% of total solana in circulation staked with liquid delegation voucher protocols. Markets price LST based on

$lst_value ∝ native_yield+ native_slashing_risk$

With the emergence of restaking and economic security as a meme, a new delegation voucher emerged called Liquid restaking token where a protocol would take the native eth or lst and delegate it to specified operators or members of the restaking protocol to get yield for the economic security it provides. ex Renzo, Puffer So LRT issuers are not just the asset issuing layer but also become the risk managers by deciding which operators they stake with the dapps they secure

$LRT_value ∝ AVS_yield + restaking_slashing + lst_value$

Now the risk causes the price to be at a discount from native assets.

LRTs have ballooned to around 13 Billion in TVL which shows the market apetite but there are around 10 different LRT protocols.

Now there are two different approaches ->

1. AAVE approach ->AAVE manages the risk of all the positions on its platform and in the situation of liquidiation allows users to liquidate position to keep of the bad debt from accuring the network where the losses are socialized. Mainly all the LRT protocols work the same way where they manage their own risk and try to keep bad debt of the balance sheet.

2. Morpho Way -> Allow any risk curator to use the framework, build their own vaults, and manage the risk like Mellow Finance did.

This introduces few new risks and options

• Restaking protocols and strategy managers want to secure blue chip AVS's who are less likely to get slashes This in turn leads to stake accumulation to very few projects

  • As stakes get accumulated, the same AVS can only provide so much yield and which leads to lower yield in turn maybe outflows.

    • Only secure the BLUE chip applications and stake/partner with good AVS to stake with them.

    • Launch their own node operator which is a good strategy, where lets say someone like figment has a big chunk of restaked eth and can launch their operator securing their own portfolio companies.

• Liquidity -> Post Renzo depeg we realized no matter what liquidity is the king but as more teams launch LRTs and form different delegation vouchers on top of restaking layers the fragmentation and arbitrage will get bigger. - One of the ways to solve this is by building a liquidity layer

• Fungibility ->The trend of bridging Liquid Restaking Tokens (LRTs) to Layer 2 networks (L2s) has gained popularity as a strategy to boost network activity. However, this approach has become somewhat formulaic, with many growth teams launching bridge-to-earn campaigns in anticipation of future airdrops. While these initiatives drive short-term engagement, they often lead to fragmented liquidity across multiple LRTs, each with its own risk profile and separate liquidity pool.One of the primary motivations for users to seek liquid delegation vouchers is to utilize them as collateral in DeFi applications. For instance, stETH has emerged as a leading DeFi collateral asset. However, when LRTs are scattered across various L2s with unbalanced pools and limited DeFi utility, they become nearly as illiquid as NFTs.

  Although bridging LRTs to different rollups has been an effective tactic for earning points, it significantly impairs overall liquidity. Lending markets on these sub-ecosystems struggle to support numerous delegation assets, resulting in users holding essentially useless LRTs across multiple rollups.This fragmentation ultimately undermines the core value proposition of LRTs, leaving users with tokens that lack meaningful utility or liquidity across disparate networks.

To solve all this a simple structure could be established

• User Deposits asset into different vaults, every vault is a different risk/strategy manager.

• If they give LRT, the risk can be redistributed according to strategy manager

• The asset is sent into a liquidity pool which can be used for borrowing and lending + becomes a buffer AMM for asset conversion.

• Users get yield for the AMM and a fungible asset across DeFi.

This prevents risk of liquidations and saves from depeg since the liqETh is a debt asset where native eth is the collateral not in USD terms but in native eth terms.