Lido Co-Founders, Paradigm Secretly Back EigenLayer Competitor as DeFi Battle Lines Form

The co-founders of dominant liquid staking protocol Lido, along with venture capital firm Paradigm, are secretly helping fund Symbiotic, a new company that will compete in the fast-growing “re-staking” arena. Subject.

Internal documents obtained by CoinDesk reveal schematics of how the project will work.

The emergence of a repurchasing player with wealthy backers could herald an encounter that could redefine the DeFi landscape.

The co-founders of Lido, Ethereum’s largest liquid staking protocol, are secretly funding a rival to EigenLayer, the popular “re-staking” service that has quickly emerged this year and become a powerful force in decentralized finance.

The project is called Symbiotic and has backing from Lido co-founders Konstantin Lomashuk and Vasiliy Shapovalov, as well as crypto venture capital firm Paradigm, through their venture firm Cyber ​​Fund, according to multiple people with knowledge of the matter. One of Lido’s leading investors.

CoinDesk also obtained internal Symbiotic documents describing the project, which allows users to “redemption” using Lido’s staked ether (stETH) token and other popular assets that are not natively compatible with EigenLayer.

Developed by the team that previously developed a staking service called Stakemind, Symbiotic will be “a permissionless re-staking protocol that provides flexible mechanisms for decentralized networks to coordinate node operators and economic security providers,” according to internal documents reviewed by CoinDesk.

The documentation is marked “preliminary” and “not for distribution,” but several teams working on the emerging repurchase ecosystem, including actively authenticated services (AVSs) and liquid repurchase services built on EigenLayer, are already looking to integrate He says they are in talks. protocol.

Representatives for Paradigm, Symbiotic and Cyber ​​Fund declined to comment on the deal.

New kid in town

Lido made a splash in DeFi just a few years ago when it developed a protocol that allowed users to stake cryptocurrency on Ethereum (essentially locking it up) but still receive a “stETH” token that they could use to trade in the meantime . The project has become so popular that it now ranks as the largest decentralized finance protocol on Ethereum, with $27 billion worth of deposits, reaching such a dominant position that some players are concerned about the operational risks of its massive influence.

The story continues

But lately Lido has been struggling with falling market share as users shift their assets to EigenLayer, a newer service that allows them to repurchase Ethereum’s native ETH token to help secure other networks.

EigenLayer is one of the biggest crypto success stories in recent memory, having attracted nearly $16 billion worth of deposits since opening to investors last year.

Similar to EigenLayer, Symbiotic will offer a way for decentralized applications called actively authenticated services, or “AVSs,” to collectively secure each other. Users will be able to repurchase assets they have invested in other crypto protocols in exchange for rewards to help secure these AVSs (aggregations, interoperability infrastructure, or oracles).

The main difference between Symbiotic and EigenLayer is that users can deposit any asset based on Ethereum’s ERC-20 token standard directly into Symbiotic; This means the protocol will be directly compatible with Lido’s staked ETH (stETH) token as well as thousands of other tokens. other entities using the ubiquitous ERC-20 standard. Meanwhile, EigenLayer only accepts ETH tokens.

A screenshot from internal Symbiotic documentation obtained by CoinDesk explaining the features of the protocol

In a perhaps ironic twist, when crypto startup giant Paradigm approached EigenLayer co-founder Sreeram Kannan about investing in his project, he turned down his money in favor of rival venture capital firm Andreessen Horowitz, according to several people briefed. About the subject. Paradigm told Kannan that they would invest in a rival company for his project instead.

Kannan did not immediately respond to a request for comment.

Uber, Lyft and a potentially huge market

The emergence of a potentially formidable EigenLayer rival underscores how companies and investors are becoming eager to benefit from share repurchases as the trend takes over industry discussions. Blockworks reported in April that Karak, which was on another resurgence, had received funding from leading US crypto exchange Coinbase, among others.

“The space is big enough for multiple players to be big,” said one infrastructure operator who plans to integrate with Symbiotic but who has repurchased a stake, speaking on condition of anonymity because the project is confidential. “I think Uber and Lyft are perfect examples. Same thing here. The repurchases are going to be huge.”

The participation of the Cyber ​​Fund, led by Lido’s co-founders, and main venture backer Paradigm could put Symbiotic in a strong position to challenge EigenLayer. This is also further evidence that people close to Lido perceive EigenLayer’s approach to repurchasing shares as a potential threat to its dominance.

While Lido remains the largest decentralized finance protocol on Ethereum, the project’s restaking strategy will play a key role in whether (and how) it can maintain its leadership in the overall staking space.

Liquid repurchase initiatives that deposit user funds into EigenLayer have engulfed the market for Lido’s stETH token. Ether.Fi and Renzo, the two largest liquid repurchase protocols, have seen net inflows of $625 million in the last 30 days. Meanwhile, Lido saw a net outflow of $75 million in the same period.

Read more: What is Recapture, Liquid Recapture and EigenLayer?

This week, members of the Lido DAO (decentralized autonomous organization), the governing body that controls the Lido protocol, publicly unveiled the “Lido Alliance,” a guiding framework for thinking about repurchase that will place stETH squarely at the center of the trend.

“Lido DAO will identify and recognize projects that share the same values ​​and mission and have a path to contribute positively to the stETH ecosystem,” the proposal stated. “Growing an Ethereum-compatible ecosystem around StETH helps decentralize the network.”

Although Lido is not directly affiliated with Symbiotic, the re-stake initiative funded by Lido’s co-founders fits well with the Lido Alliance framework.

While EigenLayer only accepts deposits of ether (ETH) tokens, Symbiotic will not accept ETH deposits at all. Instead, it will allow users to directly deposit any ERC-20 tokens that Lido stakes, such as ETH (stETH).

“Collateral in the symbiotic can include ERC-20 tokens, withdrawal credentials of Ethereum validators, or other on-chain assets such as LP positions, without limitation on which blockchains the positions are held on,” the project documents said.

Negotiations with restocking companies

A screenshot with captions from internal Symbiotic documentation, obtained by CoinDesk

Symbiotic’s collateral approach ties into its broader ambition to be a “permissionless” protocol; This means that applications built on the platform must have significant leeway in how they leverage it to serve their use cases.

“I’m excited about what they’re working on. It looks interesting and innovative,” Mike Silgadze, co-founder of Ether.Fi, one of the largest repurchase protocols, said in a Telegram message. “They seem to be focused on building something completely permissionless and decentralized.”

Renzo, another major liquid repurchase service, is in integration talks with Symbiotic after its launch, according to a source close to both teams.

Symbiotic has not publicly disclosed any information or confirmed when it will launch, but four sources consulted for this article said they expect the platform to launch in some form by the end of this year.

Margaux Nijkerk contributed reporting.