The Importance of Immediate Liquidity in Restaking

June 19, 2024
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Liquidity has an indispensable role within Decentralized Finance (DeFi). It’s the cornerstone that enables the smooth functioning of trading, investing, and asset management within the DeFi ecosystem.

Liquidity is crucial for enabling various innovative DeFi functionalities such as yield farming, where participants provide liquidity to earn potentially higher returns. These activities not only incentivize the provision of liquidity but also help in maintaining the necessary volume and price stability required for the robust operation of DeFi protocols​.

In essence, liquidity is the lifeblood of DeFi. But how exactly does liquidity impact InceptionLRT and our restaking services?

The Importance of Liquidity in Liquid Staking and Restaking

Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs) represent a significant evolution in the DeFi sector by making staked assets liquid. Essentially, LSTs and LRTs convert staked assets into liquid forms, which can be easily traded or used in other financial activities.

The ability to trade or use staked assets without having to unlock them directly has contributed to a remarkable growth trajectory for liquid staking within the DeFi space. Liquid staking is now one of the largest categories in DeFi with over $53 Billion in total value locked (TVL), indicating its significant impact on the market dynamics and its increasing acceptance among Defi participants​.

unnamed.png Liquid Staking Market TVL Growth (Source)

The liquidity provided by LSTs and LRTs is foundational to their functionality, ensuring that these tokens can be readily exchanged or utilized in various DeFi protocols. This ease of transaction promotes higher levels of interoperability and protocol stability while encouraging broader market participation.

LSTs and LRTs serve primarily to provide liquidity, but understanding the mechanics behind this process can offer greater insight into their broader impacts on market stability and participation.

Challenges with Unstaking

A notable challenge within DeFi, particularly with protocols built on EigenLayer, is the unstaking process, which is marred by liquidity lock-up issues and a mandatory seven-day unbonding period.

unnamed.png EigenLayer docs on the 7 day withdrawal delay (Source)

This duration extends beyond Ethereum's typical three to seven days for asset unbonding, presenting a significant liquidity constraint for users. Such delay is a preventive mechanism that can help mitigate protocol attacks and vulnerabilities. However, this security measure raises the issue of locked-up liquidity.

This lack of immediate asset availability is a critical drawback because it ties users' capital in non-liquid positions for extended periods, thereby increasing opportunity costs and reducing flexibility in asset management. Users looking to withdraw their staked assets must plan for an extended waiting period during which they cannot utilize these assets for trading or other investment opportunities.

Taking this into account, several prominent restaking protocols still lack unstaking options. Prominent protocols like Renzo Protocol and Puffer Finance, both of which rank within the top three in terms of total value locked (TVL), do not provide any mechanism for unstaking assets yet.

unnamed.png Renzo Protocol and Puffer Finance TVL Growth (Source)

This can deter potential and existing participants from engaging more deeply with the Restaking ecosystem, as they may seek more fluid alternatives that allow faster access to their funds.

Immediate unstaking features can dramatically improve user experience, fostering greater trust and confidence in the protocols. They also promote higher liquidity levels, which is beneficial for the overall health and competitiveness of the DeFi ecosystem.

InceptionLRT’s Upcoming Flash Unstake Feature

In an attempt to address these market inefficiencies, InceptionLRT is developing a Flash Unstake feature that will revolutionize liquidity management. This feature tackles the liquidity lock-up issue from EigenLayer allowing users to unstake their assets instantaneously, granting them rapid access to their funds.

By overcoming the limitations of EigenLayer's 7-day escrow period, InceptionLRT ensures that users can respond quickly to market changes and manage their portfolios more effectively. This feature is bound to set a new standard in the Defi space, making InceptionLRT’s liquid Restaking (LRTs) the most liquid on the market

This feature will provide Restakers with the following Benefits:

  • Immediate Liquidity: Users can quickly convert their restaked assets back into their original forms without having to wait for the typical unbinding period.

  • Increased Flexibility: By providing users with rapid access to their assets, they may better manage their portfolios and capitalize on other Defi opportunities.

  • Improved User Experience: The convenience of the Flash Unstake feature will increase trust and confidence in the protocol, resulting in greater participation and adoption

  • Cost-Effective Liquidity: The Flash Unstake module offers a predictable and scalable liquidity solution, minimizing the inefficiencies associated with traditional Defi liquidity provisioning scenarios

  • Market Competitiveness: By Integrating their functionality, InceptionLRT establishes a new benchmark in the Restaking space, making its LIquid Restaking Tokens (LRTs) the most liquid on the market

Case Study: Ankr and ankrBNB's Flash Unstake

A noteworthy example of effective implementation of quick unstaking features can be seen in Ankr's ankrBNB, a Liquid Staking Token that includes a Flash Unstake functionality.

The Flash Unstake feature allows users to convert their ankrBNB back into the underlying BNB instantaneously. This process bypasses the conventional unstaking period, which can range up to 30 days, thus eliminating a significant barrier in traditional staking models. To ensure the sustainability of the Flash Unstake feature, Ankr strategically reserves a percentage of the total staked tokens. This reserve allows Ankr to facilitate immediate withdrawals from the pool.

By providing an immediate conversion of LSTs back to the original staked assets, Ankr improves the utility of these tokens while enabling users to deploy their capital more effectively across various DeFi platforms. This flexibility is crucial in a rapidly changing market, allowing users to quickly adapt their strategies to market movements.

For those interested in learning more or trying out the ankrBNB flash unstake feature, read Ankrs blog post about it: Ankr Introduces Flash Unstake to Ethereum

The Future of Liquidity in Liquid Restaking

The discussion around liquidity and the importance of shorter unstaking periods in liquid restaking is not just academic but a critical factor in the competitiveness and efficiency of DeFi protocols.

As the landscape evolves, the adoption of innovative features that enhance liquidity will be paramount. InceptionLRT is poised to lead this front with its upcoming launch of the Flash Unstake feature, promising exciting developments that could redefine the Restaking standards and improve the overall user experience

Stay tuned for detailed updates and the official launch of this groundbreaking feature!

-> In the meantime, explore InceptionLRT and start your Restaking Journey today if you haven’t already!

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