Liquidity Re-staking Gold Rush Retreats, Marginal Profit Dilemma Forces Five Major Protocols to Transform Collectively

Author: Jae, PANews

The LRT (Liquidity Re-staking) protocol, once regarded as the "Ethereum yield engine," is undergoing a collective transformation.

On September 29, a notice from the leading LRT protocol ether.fi poured cold water on the re-staking market. This protocol, once seen as a benchmark in the field, announced that it would officially divest its re-staking business by the end of this quarter and fully transition to a Neobank (crypto new bank). CEO Mike Silagadze candidly stated that re-staking lacks meaningful yield opportunities and comes with significant security risks, making the exit a rational choice.

As of September 30, the total locked value in the entire liquidity re-staking market was approximately $1.45 billion, but the total protocol revenue generated across the entire sector in one week was only about $100,000.

ether.fi is not the first to pivot, nor will it be the last. The five leading protocols in the liquidity re-staking sector—Kelp, Renzo, Swell, Puffer, and Bedrock—are all tearing off the singular "LRT label" and embarking on a second entrepreneurial journey that is critical for their survival.

Kelp: A Year Rewritten by Hackers, From Earning Interest Margins to Selling Liquidity

As the second-largest LRT protocol after ether.fi, Kelp's transformation carries a strong passive tone.

The cross-chain bridge attack on April 18 was a black swan event for Kelp and the entire LRT market. The attacker forged cross-chain messages and released approximately 116,500 rsETH, worth about $293 million. This incident not only severely impacted Kelp's balance sheet but also sounded the alarm for the entire industry regarding the security of re-staking operations.

Surviving the ordeal, Kelp began to tighten its lines. In May, it announced a contraction of its rsETH cross-chain landscape, focusing on supporting networks with higher security and ecological integration, and gradually closed rsETH bridges on multiple chains. Earlier, the BNB re-staking product Kernel, which is part of the KernelDAO ecosystem, preemptively liquidated, halting new deposits since March.

However, Kelp did not exit the yield market; instead, it switched tracks: from selling "re-staking yields" to selling "short-term credit liquidity."

The focus shifted to two new businesses: the strategy vault Gain and the stablecoin KUSD. Among them, KUSD is a new product that has not yet launched. According to official disclosures, it is a short-term settlement liquidity tool aimed at institutions, allowing them to obtain short-term funds for payments, exchanges, and cross-border settlements, repaying and paying interest after transactions, with yields primarily coming from real settlement activities.

After the theft, Kelp's TVL dropped from nearly $1.5 billion to just over $1.1 billion, a decline of about 25%. Nevertheless, aside from ether.fi, Kelp remains the protocol with the highest TVL in the LRT sector. Since the beginning of this year, Kelp's cumulative gross revenue has been $26.52 million; however, the vast majority of this gross revenue needs to be allocated to user ETH staking and EIGEN token rewards, with only 5% truly disposable by the protocol. Thus, the protocol's profit stands at only $1.41 million.

Notably, the management fee retention rate for Gain series products like agETH and hgETH is 100%, and the TVL is only about $30 million. It can be said that the strategy vault has created nearly 25% profit with about 2.5% of TVL and 1.3% of revenue share.

Renzo: From LRT Issuer to On-chain Structured Products

In contrast to Kelp's passive adaptation, Renzo is actively transforming.

On September 9, Renzo Protocol officially rebranded to Renzo Finance, upgrading its positioning from "LRT protocol" to "on-chain structured yield platform." Its product system has been divided into three major modules: Staking Suite, Reserve Vaults, and Enterprise Suite.

Behind the name change is a shift in business logic. In the past, ezETH was the absolute mainstay, with all operations revolving around issuing LRT; now, LRT will gradually transform into an asset entry point and existing base, with the growth focus shifting to actively managed structured yield products.

Since the beginning of this year, Renzo's cumulative gross revenue has been $5.84 million, with a gross profit of $1.01 million. The protocol's revenue scale is considerable, but its profit conversion efficiency is relatively low.

Additionally, since Q4 of last year, the ratio of ezETH's market value to Renzo's TVL has been continuously weakening. Although the proportion remains at a very high level, it has now declined to 94.5%, indicating that the main growth driver for the protocol is no longer ezETH.

The transformation actions are also intensively landing. On the same day of the name change, Renzo launched the Delta Neutral Basis Yield Vault "Renzo Basis" on Hyperliquid, specifically capturing arbitrage opportunities between funding rates and spot basis; a week later, the protocol announced its expansion to Lighter on the Robinhood Chain, laying out basis trading for on-chain stocks.

Essentially, this is similar to the "structured product" model in the traditional asset management industry: Renzo acts as the strategy manager, screening and constructing trading strategies with different risk-return characteristics, packaging them into standardized vault products for users to subscribe to, earning management fees and performance rewards. ezETH no longer needs to bear all the growth mission; it is just one of the underlying assets.

Swell: Shutting Down L2, Betting on AI Trading Terminal

Swell's transformation actions are the most aggressive.

Since the beginning of this year, Swell's cumulative gross revenue has been $868,600, with a gross profit of only $43,400. The cost side has strongly eroded revenue, indicating that the protocol's revenue conversion ability is weak, and profit quality is under pressure.

In fact, Swell announced the closure of Swellchain as early as April 28. This Layer 2, built on the Optimism Superchain and once hoped to be a "re-staking dedicated chain," was aborted less than a year after its launch. The team explained that the maturity speed of the re-staking ecosystem was far below expectations, while Ethereum's L1 expansion and low transaction fees also reduced the necessity of deploying L2. Rather than struggling in a red ocean, it is better to concentrate all engineering and business resources on another business line of the team, Faro.

And Faro has nothing to do with LRT anymore.

Faro is a non-custodial AI trading smart application built on Hyperliquid. It aggregates on-chain data, social sentiment, market indicators, and other multidimensional information to generate trading strategies, allowing users to execute trades directly through Hyperliquid with one click.

In simple terms, Swell is shifting from "providing yield assets" to "providing trading services." The revenue model has also changed from earning staking interest margins to earning subscription fees, trading execution fees, and future ecological value capture.

However, the transformation is still in its early stages, and whether Faro can convert the trading volume on Hyperliquid into cash flow for the protocol remains to be seen.

Puffer: Jumping Out of Yield Involution, Betting on Ethereum Execution Infrastructure

While peers are seeking increments on the asset and user sides, Puffer has chosen to dig deeper: rooting into Ethereum's infrastructure layer and transforming into an infrastructure service provider.

Currently, Puffer's product matrix covers four major modules: LRT, Institutional Services (Puffer Institutional), Preconf, and UniFi Based Rollup. The LRT business is still present but mainly aimed at institutional clients as a basic configuration. On March 12, Puffer partnered with the regulated digital asset platform Anchorage Digital to provide compliant pufETH investment channels for institutions, embarking on a B2B route.

More notably, the UniFi Based Rollup. Puffer has abandoned the centralized sequencer solution commonly adopted in the industry, launching a Rollup architecture where transactions are directly executed by Ethereum L1 validators, eliminating cross-chain composability barriers and the censorship risks of centralized sequencers, achieving native atomic-level interaction and instant withdrawals between L2 and L1.

On September 23, Puffer announced a strategic partnership with Google Cloud, with the latter serving as the enterprise-level gateway operator for its Preconf Gateway system, providing sub-second pre-confirmation services for transactions; a week later, on September 30, Puffer once again partnered with Anchorage Digital to introduce institutional-grade custody and settlement infrastructure for Puffer UniFi. This marks Puffer's evolution from a single LRT protocol to an infrastructure service provider for Ethereum's execution layer.

Since the beginning of this year, Puffer's cumulative gross revenue has been $1.14 million, with a gross profit of $57,200. Staking rewards contribute almost nothing to profits, indicating that the protocol's actual profitability mainly relies on various service fees.

The profit from re-staking operations is essentially zero, but if it becomes a trading platform, AI Agent, and infrastructure for institutional payments and settlements, revenue sources will expand from meager service fees to multiple sources such as sorting fees, pre-confirmation fees, and infrastructure fees.

Of course, telling the infrastructure story is easier than executing it. The investment period for transformation is far from over, and commercialization still requires time to realize.

Bedrock: Reconstructing Yield Engine with Bitcoin, Escaping Ethereum Cycle

Bedrock has taken a different path, embarking on a journey of asset migration, replacing Ethereum with Bitcoin to build an independent yield system.

Among all leading LRT protocols, Bedrock has completed the most thorough asset focus replacement. Now, its official narrative has almost completely shifted to BTC, with ETH no longer the main character.

According to DeFiLlama data, the TVL of Restaked BTC has exceeded $1 billion, while the ETH LRT sector is about $1.4 billion. The scale gap between the two is continuously narrowing.

Returning to Bedrock, among its $408 million TVL, uniBTC accounts for $379 million, nearly 94%, becoming its most important asset entry; the once main product uniETH now has a TVL of only $27.5 million, relegated to a secondary product.

On June 24, Bedrock launched version 2.0, further clarifying its strategic direction: to create a "Smart Yield Engine" for Bitcoin capital. Through Yield Vaults, it aims to allocate Bitcoin capital to various strategies such as institutional credit, delta-neutral basis, DeFi, and RWA, attempting to build a profit barrier independent of the Ethereum cycle.

Interestingly, Bedrock's revenue and profit pillars still rely on uniETH staking operations. Since the beginning of this year, the protocol's cumulative gross revenue has been $647,800, with a gross profit of $76,800. Although the redemption fees for uniBTC contribute significantly more to profits than their share of revenue, the protocol's revenue and profits still heavily depend on uniETH staking rewards.

In horizontal comparison, the now secondary uniETH has earned more revenue and profit with less TVL, while the main product uniBTC appears slightly below expectations. The challenge for Bedrock in the next phase may be how to enable uniBTC to generate a "profit leverage effect" similar to uniETH.

Consensus Among the Five Protocols: Transforming LRT from "Product" to "Capital Entry"

Five leading players, five transformation paths, differing directions, but the underlying logic is highly consistent.

First, the yield logic has changed. In the past, the selling point of LRT was "triple yield": basic staking yield + re-staking yield + point airdrop. However, as the demand for AVS (Active Validation Services) has not met expectations, point incentives have retreated, and penalty risks have risen, the additional yield can no longer cover the new risk exposure, leading to the end of the growth model that relies on yield to attract locked assets.

Second, protocols are beginning to shift from asset issuance to asset management. Renzo's structured vaults, Kelp's Gain strategy vault, and Bedrock's Bitcoin yield vault are essentially all aiming to earn "management fees/performance rewards for user capital allocation." The income efficiency of unit capital will replace TVL as the new observation metric.

Third, infrastructure has become another monetization path. Puffer bets on Preconf pre-confirmation and Based Rollup infrastructure, while Swell shifts to AI trading terminals; both are moving away from the logic of "locking assets" to focus on the infrastructure needs of "processing transactions, servicing orders, and output capabilities." The revenue ceiling is no longer limited by staking yield rates but depends on trading volume and product penetration.

In simple terms, LRT is evolving into a fundamental capital entry: user funds obtain basic yields and composability through re-staking, while protocols generate revenue through upper-layer structured products, credit, trading, and infrastructure services.

The story of the new cycle is all about pursuing "explainable cash flow."

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