Liquid Restaking Tokens (LRTs)

When you restake your ETH (or liquid staking tokens like stETH) on a protocol like EigenLayer, those assets are effectively "locked" into the restaking contracts. You are earning extra yield, but you can no longer use that ETH to trade, lend, or provide liquidity on a DEX. This creates an opportunity cost. Liquid Restaking Tokens (LRTs) solve this by acting as a "receipt" for your restaked position. When you deposit into an LRT provider like Ether.fi, Renzo, or Puffer, they handle the restaking process for you and give you back an LRT (e.g., eETH or ezETH).

LRTs are the "next evolution" of Liquid Staking Tokens (LSTs). Just as stETH made staking more efficient by making it liquid, LRTs make restaking more efficient. These tokens are designed to be "money legos" within the DeFi ecosystem. You can take your LRT and put it into a lending market to borrow stablecoins, or use it as collateral on a perp DEX. This allows for "yield stacking": you get the Ethereum staking reward, the restaking reward from multiple AVSs, and the DeFi yield from wherever you use the LRT.

For investors, LRTs are the easiest way to access the restaking ecosystem. You don't have to manually choose which AVSs to secure or which operators to trust; the LRT protocol handles those "risk management" decisions for you. However, this introduces "layering of risk." If you hold an LRT, you are exposed to: 1) Ethereum's protocol risk, 2) The liquid staking provider's risk (if using an LST), 3) The restaking protocol's risk (EigenLayer), and 4) The LRT provider's own smart contract risk. If any of these layers fail, your capital is at risk. Investors should carefully evaluate the "health" and "decentralization" of the LRT providers they choose.