The "Battle of Yields: LSTs vs LRTs" AMA brought together experts from YieldNest, Meta Pool, and StakeWise to discuss the evolving landscape of Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs). The panel explored the differences between LSTs and LRTs, their current yield generation, contributions to crypto-economic security, and their integration into the DeFi ecosystem.

The conversation also touched on regulatory and security challenges, with panelists emphasizing the need for transparency and decentralization. Looking ahead, they highlighted significant innovation opportunities in both LST and LRT spaces, predicting growth and institutional interest over the next 12 months. Dive into the highlights below to explore the key insights and future trends discussed in the session.

X (Twitter) Spaces: Battle of Yields: LSTs vs LRTs

Speakers:

• Amadeo Brands (X (Twitter)): Co-Founder @ (YieldNest)

• Claudio Cossio (X (Twitter)): Co-Founder @ (Meta Pool)

• Kirill Kutakov (X (Twitter)): Co-Founder @ (StakeWise)

Index:

1. Liquid Staking Tokens (LSTs) vs Liquid Restaking Tokens (LRTs) Explained
2. Current State of Restaking Rewards
3. Restaking Contribution to Crypto-Economic Security
4. Defi Composability: LSTs vs LRTs
5. Regulatory and Security Challenges
6. Future Outlook for LSTs and LRTs

LSTs and LRTs Explained:

The panel provided a concise explanation of Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs), outlining their purpose and how they function within the DeFi ecosystem.

• Claudio (Meta Pool): "LSTs accrue value over time, and they offer more than just staking rewards. You can use them as collateral or in liquidity provision. On the Ethereum side, for instance, our LST accrues value every second, calculated without needing an oracle."

• Kirill (StakeWise): "At Stakewise, we allow permissionless LST minting for individual node operators. This means that anyone running a node can mint an LST to make their stake liquid, offering unique flexibility compared to other protocols where nodes are operated by the DAO."

Current State of Restaking Rewards:

The panelists highlighted the reality that restaking protocols currently offer higher yields through points rather than real yield, with a focus on EigenDA and the potential for growth in this space.

• Amadeo (YieldNest): "No restaking protocol is currently generating native yield. Most are distributing points rather than actual staking rewards. This is a common issue across the board, though we’re hopeful more real yield will develop."

• Claudio (Meta Pool): "EigenDA is currently the only service distributing any meaningful rewards, though they’re still small. Most rewards in the space are still speculative or based on point distribution rather than real, earned yield."

• Kirill (StakeWise): "LRTs are generating higher yields, but this is mainly through points and token distributions. Real yield is still something the space is striving for, and it’s important to clarify that to users."

Restaking's Contribution to Crypto-Economic Security:

The discussion also covered how restaking contributes to the broader crypto-economic security and the potential for this model to support off-chain applications.

• Amadeo (YieldNest): "Restaking is a primitive that allows you to reuse economic security from Ethereum, extending it to other off-chain applications. However, we still need more work to realize the potential of real yield in restaking."

• Kirill (StakeWise): "The durability of crypto-economic security from restaking remains unproven. Slashing mechanisms and how restaked capital is handled are still key questions we need to answer."

• Claudio (Meta Pool): "AVS services could help bootstrap new protocols and fintech applications, providing additional crypto-economic security. But for now, these remain more theoretical than practical in most cases."

DeFi Composability: LSTs vs LRTs:

The conversation then shifted to how LSTs and LRTs compare in terms of composability and integration in the DeFi space, with a consensus that LSTs currently lead in this area, particularly with tokens like Wrapped stETH.

• Kirill (StakeWise): "LSTs have better composability in DeFi, especially Wrapped stETH. It’s one of the few LSTs that’s accepted as collateral on multiple platforms, including exchanges and options trading platforms. LRTs, though, are gaining ground in terms of yield."

• Claudio (Meta Pool): "LSTs are more established. They’ve had 2-3 years of DeFi integrations, which has given them a compositional advantage. LRTs are newer but are catching up fast due to their higher yield potential."

• Amadeo (YieldNest): "We expect significant innovation in derivative products and DeFi composability over the next 12 months. There’s a lot of opportunity to create new forms of value within the space."

Regulatory and Security Challenges:

The panelists identified that regulatory clarity and improved security perceptions are crucial for further adoption of LSTs and LRTs, particularly by institutions.

• Kirill (StakeWise): "The lack of regulatory clarity is preventing broader institutional adoption of LSTs. We need fewer hacks, fewer key compromises, and more security improvements to attract institutions. ConsenSys and MetaMask are leading the charge here."

• Amadeo (YieldNest): "Many restaking protocols are still centralized, operating with upgradeable contracts controlled by multisigs. It’s essential that the industry moves toward greater transparency and decentralization."

• Claudio (Meta Pool): "Transparency about risks and protocol fees is critical. We need to ensure that users understand what they’re getting into, and that includes educating them about potential smart contract risks."

Future Outlook for LSTs and LRTs:

The panelists concluded by offering their predictions for the next 12 months, with each seeing significant innovation and growth in both LST and LRT spaces, especially with the rise of institutional interest in staking.

• Kirill (StakeWise): "I hope to see improved security perceptions and regulatory clarity for LSTs within the next 12 months. If real yield emerges in the LRT space, I expect LSTs will need to adapt quickly, possibly repurposing themselves into LRTs to remain competitive."

• Amadeo (YieldNest): "The next year will see an explosion of derivative products in DeFi. I’m especially bullish on Ethereum Layer 1 and its capacity to build out the next generation of financial products."

• Claudio (Meta Pool): "We’re bullish on LSTs and plan to launch a multi-chain liquid staking index in Q1 2025. This will abstract away the complexity of managing multiple wallets and provide a new layer of composability for users."