Exploring Renzo: The EigenLayer Liquid Restaking Hub

The Renzo protocol is a premier EigenLayer Liquid Restaking hub. It serves as an interface on top of EigenLayer and abstracts away the complexity for users looking to restake their ETH or Liquid Staking Tokens (LSTs).

Renzo strongly advocates for EigenLayer and works diligently to promote its widespread adoption. The protocol launched its beta mainnet in December 2023 and allows users to deposit ETH, stETH, or wBETH to access EigenLayer restaked points.

If you are unfamiliar with EigenLayer, it is leading the charge to improve the efficiency of staked assets. EigenLayer consists of Actively Validated Services (AVSs), Operators that validate AVSes, and restakers who lock up tokens for validation purposes. When holders stake their ETH on EigenLayer, they secure AVSes, which are decentralized services that inherit Ethereum's security via EigenLayer.

So, EigenLayer empowers users to restake their tokens to earn yield. By opting into EigenLayer via their AVS Operators, users can earn more rewards from their native ETH. They can also opt-in to use their Liquid Staking Tokens (LSTs) for re-staking.

Thus, users who restake can generate other rewards on top of staking rewards. However, due to its multifaceted nature, EigenLayer is undergoing a careful, phased implementation.

We've already covered EigenLayer and AVSes in another article. So, if you want to learn more about how EigenLayer works, please read it first. This article will primarily focus on Renzo, its Liquid Restaking Token (LRT) called ezETH, restaking strategies, and how the protocol complements EigenLayer.

What Does the Renzo Protocol Do?

Renzo's simplified interface eases access to EigenLayer and connects users with its AVS node operators. By abstracting away the complexity, Renzo is leading the way to increased user adoption of EigenLayer's services.

The team designed Renzo as the primary on-ramp/off-ramp for those looking to restake on EigenLayer. Renzo combines smart contracts and nodes to optimize the best risk/reward restaking strategies based on users' preferences. Moreover, it enhances Ethereum staking by securing EigenLayer's AVSs to obtain higher yields than one could get by ETH staking alone.

Liquid Restaking Tokens

LRTs serve as a protective buffer for the Ethereum Mainnet. Since users are free to exchange their LRTs back to ETH, there is no need to withdraw them from Ethereum's Beacon Chain. Thus, the LRT mechanism reduces the chance of a cascading liquidation event occurring on the Ethereum Beacon Chain.

Additionally, LRTs, as an advancement over traditional liquid staking, offer Ethereum a new way to invigorate its staking ecosystem.

Traditional liquid staking protocols use deposited ETH to secure the PoS Beacon Chain. In contrast, liquid restaking protocols like EigenLayer use funds to validate AVSes, which in turn validate other systems like oracles, bridges, and rollups. Additionally, liquid restaking protocols handle restaking complexities behind the scenes to simplify the process for users.

Liquid Restaking Tokens and ezETH

Renzo’s liquid restaking token is ezETH. It represents a user's restaked position. For every ETH or LST deposited on Renzo, the protocol mints an equal amount of ezETH. Thus, when participants deposit LSTs or native ETH, they receive ezETH. Further, ezETH is a reward-bearing token similar to Compound's cTokens.

Underlying restaking positions earn rewards, which are reflected in the price of ezETH. So, ezETH values increase relative to the underlying LSTs as they earn rewards. Rewards come in ETH, USDC, and AVS reward tokens, and to mint ezETH, users need to visit the renzoprotocol.com/restake page and stake their ETH or LSTs.

ezETH tokens can be deployed in various ways. Users can hold them for rewards, swap them on DEXs, or find other DeFi opportunities to integrate them for a higher yield.

However, users must hold ezETH to accumulate associated rewards. Swapping ezETH for other ERC-20 tokens (unless it is an LP token representing underlying ezETH) negates rewards tied directly to ezETH. Additionally, each ezETH a user holds accumulates one EigenLayer Point, one ezPoint, and any boosts.

ezPoints on Renzo

Another EigenLayer component that the Renzo protocol mirrors is the points-based incentive program. EigenLayer's Restaked Points are awarded to stakers to recognize their contribution to the ecosystem's security—likewise, Renzo's ezPoints reward contributors to the Renzo protocol.

Renzo points reward users who contribute to the protocol's success. Starting with the mainnet launch in December 2023, each participant in the ecosystem will receive points. The number of points will vary depending on the duration and nature of participation. Renzo passes along any EigenLayer rewards to its stakers. Fees will be split between the treasury and Renzo's node operators.

The first way to receive points is to mint or hold ezETH. Holders receive one Renzo ezPoint per hour for every ezETH held. Additionally, users will receive boosts for participating early.

Note that "Looping" is prohibited. Looping occurs when a holder sells the same ezETH for ETH to generate rewards multiple times. Renzo's system watches for this behavior to void Boost and ezPoints for those committing this infraction.

If a user deposits 1 ETH into Renzo they receive one ezPoint per hour plus any boosts. Users who deposit 0.5 ezETH + 0.5 ETH in a DEX pool receive two ezPoints per hour. Accumulated points get added to user balances.

Renzo's referral system provides extra ezPoints for those who invite others to deposit ETH. For each referral who joins Renzo, the referrer earns an additional 10% of the referred users' points. A referral who earns 100 ezPoints will, in turn, earn ten ezPoints to the one who referred them. The system is cumulative, so the more ETH a referral deposits, the more ezPoints the referrer accumulates.

REZ Token Launch

Renzo's Season 1 ezPoints campaign ended on April 26, 2024, and a second season of incentives began on the same day. Some of Renzo's highlights from the first season include obtaining over 250,000 users, $3.5 billion in deposits, and becoming a Top 10 DeFi protocol based on TVL.

All users in the ezETH ecosystem from Season 1 are eligible for points allocation in the new season. Furthermore, eligible wallets from Season 1 will receive an additional 10% boost for Season 2 participation.

April 30, 2024, will mark the launch of REZ, Renzo's native token. The ensuing airdrop will mark the beginning of decentralization for the protocol. REZ can be claimed from that day forward, with the airdrop linearly taking place in accordance with a user's ezPoints balance. That's because Renzo ezPoints will be used to distribute 7% of the total supply of REZ according to each user's accumulated ezPoints. Eligibility is based on the ezPoints balance in a user's wallet. The minimum ezPoints per wallet for eligibility is 360.

REZ Tokenomics and Vesting

Renzo is focused on doing what's best for the protocol and the community over the long term. They're applying a vesting schedule to the largest airdrop recipients to keep incentives adequately aligned. Vesting is designed to reward longer-term participation. So, if a user exits the ezETH ecosystem early, their unvested rewards may be distributed to other loyal users. This type of incentive program increases loyal users' desire to participate longer.

The total supply of REZ is listed at 10,000,000,000, with an initial circulating supply of 1,150,000,000. REZ to be distributed as follows:

Fundraising: 31.56% This allocation represents investors' token rights obtained by backing Renzo's development early on. Investor's tokens are subject to a 2-year lock.

Community: 32% The community allocation is for developing and supporting the growth of the Renzo ecosystem. The first 7% represents the REZ tokens distributed to Renzo users for the Season 1 ezPoints Campaign. The remainder will go to various community campaigns, including Season 2 of the incentives campaign.

Core Contributors: 20% This REZ allocation is distributed to the Renzo Labs team, which has worked to bring ezETH to market. Renzo will not unlock core contributor tokens before one year has passed.

Foundation: 12.44% The Foundation allocation goes to funding initiatives that expand the reach of ezETH.

The final allocations go to the Binance Launch Pool and Liquidity Campaigns at 2.5% and 1.5% respectively.

Lastly, those participating in the Renzo protocol can use REZ tokens to vote on governance proposals and vital measures to affect protocol operations, such as AVS and Operator whitelisting, risk management frameworks, and community grants.

What Is a Restaking Strategy?

A restaking strategy refers to a user securing one (or a combination) of the AVSs available to maximize yield. The more AVSs available, the greater the number of possible strategies. Each AVS offers a unique entry point to earn rewards counterbalanced by potential slashing risks. Hence, the more AVSs a user selects, the more diverse the possible strategies.

A strategy manager entails optimizing a risk/reward profile by selecting the best AVS combination available on EigenLayer. Unsurprisingly, the best strategies generate the highest yield with the least risk.

As we've learned, users may deposit ETH or LSTs and receive ezETH in return. So ezETH tokens represent their restaked position. Using the Renzo protocol, stakers can secure one AVS or choose a combination.

Renzo is partnering with node operators to help specify which AVS should be run. Likewise, the protocol must determine which Node Operators to opt in with as new AVSes deploy.

Renzo is working to handle some of the unknowns in EigenLayer. For instance, Node Operators can choose who can delegate to them. So Renzo will help solve some of these challenges to find the best risk/reward options for their ezETH holders.

A snapshot vote will initially decide which AVS Node Operators Renzo users should opt in and out of. Later, on-chain governance will choose between these choices.

Renzo takes a user's choice of AVSes and optimizes the best risk /reward strategies via smart contracts and Operator nodes.

Unstaking Period - Withdrawals

For those ready to unstake their position, the unstaking process has a minimum of seven days and varies depending on which restaking strategies a user has deployed. This unstaking period is primarily the result of the requirements inherent to EigenLayer and varies depending on the AVS employed.

Renzo Partners with Luganodes

Renzo runs an Ethereum validator infrastructure powered by Luganodes and others to maximize participation on Eigenlayer. Luganodes is providing its institutional-grade staking services to Renzo, becoming only the third node operator entrusted with this responsibility.

We're thrilled to partner with @RenzoProtocol, powering their @eigenlayer operator with our enterprise-grade blockchain infrastructure.

Renzo protocol is a leading LRT and Strategy Manager for EigenLayer, it simplifies user experience, fostering seamless collaboration between… pic.twitter.com/qt7deyOE3o

— Luganodes (@luganodes) April 25, 2024

Renzo's smart contracts allow delegation to multiple operators on EigenLayer. The company documents state: "When a user deposits native ETH, it is staked via an Ethereum Beacon chain validator node. The native ETH is held in the DepositQueue contract until the 32 ETH minimum is met. Once the minimum is met, the ETH is sent directly to the Beacon Chain Deposit Contract, and the withdrawal credentials are pointed at the EigenPod in EigenLayer." EigenPod is a contract designed for native restaking.

This deposit helps secure EigenLayer AVSes, and the deposited ETH earns Ethereum validator rewards and EigenLayer AVS rewards for the protocol. Restakers don't need 32 ETH to participate, however. There are no minimums or maximums regarding ETH.

Those staking LSTs must abide by Renzo's maximum cap amount. EigenLayer caps the LST deposits to prevent the system from getting overheated. But caps do not apply to native ETH restaking.

As new ETH enters the protocol, reaching the 32 ETH deposit level, a new ETH Validator joins the network. Depending on the Validator Entry Queue, there is a lag time before a new Validator node is activated on the network. Once a node is activated, it can take up to two weeks for it to pay out the entire cycle's rewards.

Early on, when TVL in Renzo is likely low, this lag time will cause a lower APR than other staking services. However, this trend should rise to expected staking yield levels as TVL grows.

Additionally, the APR is based on the 14-day moving average of rewards paid by ETH Validator Nodes. After EigenLayer goes live on the mainnet and is paying rewards for securing AVSs, these rewards will also be included in the APR.

Remember that depositing ETH with Renzo has smart contract risk and slashing risk, although a 2023 report by Figment did not show any slashing events.

Conclusion

Staking yield comes from ETH validators at the moment. However, Renzo node operators will plug directly into EigenLayer AVS as they go live to generate restaking yield.

Additionally, EigenLayer is still in active development, so interfaces will likely change over time. However, Renzo smart contracts are also upgradeable via proxy contracts to support these changes.

The restaking ecosystem is still in its early phase, but the Renzo protocol is already poised to help whet the appetite of those seeking higher ETH yield.

About Luganodes

Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 45+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.