The Lido co-founders are secretly funding a competitor to EigenLayer, capitalizing on the "restaking" trend that is quickly becoming a powerful force in DeFi.

Lido and Paradigm are secretly sponsoring a competitor to EigenLayer that could make a big DeFi battle in the future

Article Table of Contents

1. Lido and Paradigm's secret files
2. Overview of current trends
3. Comparison between Symbiotic and EigenLayer

Lido and Paradigm's Secret Files

The project called Symbiotic has garnered support not only from Lido's co-founders (Konstantin Lomashuk and Vasiliy Shapovalov) through their venture capital firm Cyber Fund, but also Paradigm, the crypto venture capital firm and one of Lido's top investors.

According to the internal description, Symbiotic allows users to "restaking" using Lido's LST Ether token (stETH) and several other popular assets that are not compatible with EigenLayer.

Developed by the team that previously built a staking service called Stakemind, Symbiotic will be a permissionless restaking protocol, providing a flexible mechanism for decentralized networks to coordinate node operators and economic security providers.

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

Overview of current trends

Lido was protocol breakthrough in DeFi world just a few years ago when it developed a protocol that allowed users to stake cryptocurrencies on Ethereum but still receive "stETH" tokens that they could use to trade in the meantime. The project is so popular that it now ranks as the dominant decentralized finance protocol on Ethereum, with deposits worth USD 27 billion.

But recently, Lido has struggled with how market share is fall as users transfer assets to EigenLayer, a newer service that allows users to restaking native ETH tokens to help secure other networks.

EigenLayer has been one of the biggest crypto success stories in recent times, attracting around USD 16 billion in deposits since opening its doors to investors last year.

Comparison between Symbiotic and EigenLayer

Similar to EigenLayer, Symbiotic will provide a method for decentralized application, called Actively Validated Services or "AVS," to secure each other. Users will be able to retrieve assets they've deposited with other crypto protocol to help secure these AVSs, be it rollups, interoperability infrastructure, or Oracles — in exchange for rewards.

The main difference between Symbiotic and EigenLayer is that users will be able to directly deposit any asset based on Ethereum ERC-20 token standard into Symbiotic, meaning protocol will be directly compatible with Lido's stETH token, as well as thousands of other assets using the popular ERC-20 standard. Meanwhile, EigenLayer only accepts native ETH tokens.

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This may have been an irony, when the Paradigm giant approached Sreeram Kannan (co-founder of EigenLayer) seeking support for his project, Sreeram turned down Paradigm's money in favor of rival venture capital firm Andreessen Horowitz. And later, Paradigm also told Kannan that it would invest in a direct competitor to EigenLayer.

An infrastructure operator who is planning to integrate with Symbiotic said: "The space is getting wider for more players to join. I think Uber and Lyft are perfect examples. Here, too, restaking is going to be a huge trend."

The participation of the Cyber Fund, led by the co-founders of Lido leading and Paradigm could put Symbiotic in a strong position to challenge EigenLayer. It's also further evidence that those close to Lido see EigenLayer's re-establishment approach as a potential threat to their dominance.

Although Lido remains the largest decentralized finance protocol in Ethereum, the project's strategy around restaking will play an important role in whether it can maintain its leading position in the staking sector as a whole.

Liquid staking startup depositing user funds into EigenLayer has entered Lido's stETH token market. The two largest liquid staking protocol, Ether.Fi and Renzo, have seen inflows of USD 625 million over the past 30 days. Meanwhile, Lido saw outflows of USD 75 million during the same period.

This week, members of Lido DAO (the regulator that controls protocol Lido) publicly proposed the "Lido Alliance," a guiding framework to consider restaking stETH at the heart of the trend.

"Lido DAO will identify and recognize projects that share the same values and mission, and have a way to contribute positively to the stETH ecosystem. Developing an ecosystem that aligns with the Ethereum around stETH helps decentralize the network."

Although Lido is not directly affiliated with Symbiotic, the reinvestment startup funded by Lido's co-founders operates under the "Lido Alliance."

While EigenLayer only accepts deposits in ETH, Symbiotic does not accept ETH deposits at all. Instead, it will allow users to directly deposit any ERC-20 token, such as Lido's stETH.

The project says in its document: "Collateral in Symbiotic may include ERC-20 tokens, Ethereum validator withdrawal information, or other on-chain assets such as LP positions, without restrictions on which blockchain positions are held."

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Symbiotic's approach to stake assets involves a larger ambition to be a "permissionless" protocol, meaning that applications built on the platform must have autonomy over how they enhance to serve their own use case.

Symbiotic hasn't released any information yet and won't confirm when it plans to launch.

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