Introduction

For crypto investors, the allure of staking — securing the network and earning passive rewards — is already core to Ethereum’s network identity and others, similar to how yield-bearing instruments in traditional finance play an important role in any portfolio. With the mainnet launch of Eigenlayer (with Eigen Labs recently announcing another $100M raise ahead of the AVS launch phase later this year), the ability for Ethereum to lend its security model to other protocols became possible, leveraging mainnet Ether to do so through a process called restaking. Enter ether.fi, the market leader in the emergent category of liquid restaking, which has grown from $0 to >1.3M ETH (>$4B TVL) in less than half a year. The ether.fi value proposition is simple yet powerful: restake your ETH on native Ethereum, earn rewards, and retain liquidity through a tradable token called eETH, gaining access to both native Ethereum rewards and additional opportunities through Eigenlayer restaking and future innovations.

Today, CoinFund is thrilled to announce our co-lead of ether.fi’s $23M Series A along with the team at Bullish. As thesis-driven investors, we’re excited to share our vision for the near and longer-term opportunity set.

Liquid Restaking Does More than Reinvent the Staking Wheel

Since the 2020 deployment of the ETH staking contract, staked ETH has grown to over 25% of the supply, validating the concept of staking-based economic security for Ethereum (versus Proof of Work historically). At the time of the Shanghai upgrade, ~15% supply had already been staked, demonstrating meaningful interest despite users initially being restricted to one-way deposits without the ability to withdraw. More recently we have seen staking evolve, not only with centralized solutions created by exchanges like Coinbase, Binance etc. but also with the success of on-chain liquid staking protocols such as Lido and Rocket Pool letting users have and eat their cake too, enabling both liquidity and rewards with the associated Liquid Staking Tokens (and related permutations, for example in Lido’s case, stETH and its wrapped and bridged versions).

Liquid Restaking, where ether.fi is the market leader, represents a potential end state of Ethereum security becoming extensible, modular, and itself financialized, in turn introducing greater fee capture potential. Acknowledging higher potential risk than regular base layer staking, we’re encouraged by with risk mitigants in the form of both the end user and the ether.fi protocol able to opt into the composable universe of Eigenlayer AVS (Actively Validated Services) while balancing overlap and minimizing slashing risk. Ultimately, the exciting vision for ether.fi includes a potential future driving next-gen consumer earning potential: a team of innovators who not only sustain or expand current market share in staking, but are able to deliver value-added, brand-consistent integrated services that can effectively increase the revenue profile beyond just the initial staking and restaking products.

The Team

Mike Silagadze, ether.fi’s founder and CEO, brings over 15 years of entrepreneurial experience as founder of educational courseware platform Top Hat, and has assembled a multidisciplinary, well-referenced and battle-tested team. Specifically, ether.fi’s Top Hat veterans which also includes CRO Rok Kopp, brings their prior execution and scaling experience, and also a track record of effectively competing in complex end markets given Top Hat’s SaaS revenue streams stemmed from a mix of serving large educational and corporate customers but also while serving individual student users, all while dealing with regulatory friction and deep-pocketed competition. Although ether.fi is still comparatively early in its journey, we see signs of the same level of thoughtfulness being present in the leadership team’s approach and design decisions on both the business and structure side of things as well as the tech-first feature-rich differentiation path taken for the platform design to-date and alongside ether.fi’s future roadmap.

The Product, Today and Tomorrow

ether.fi’s noncustodial solution enables stakeholders to retain complete control of their assets, per the protocol-enforced delegated staking service. More specifically, here are the condensed steps behind ether.fi:

1. Node operators register their public keys to be used by stakers to encrypt their validator keys, and bid to operate validator nodes.
2. Validator stakers deposit 32 ETH and nominate the winning node operator with the highest bid, and then submit their encrypted validator key to be shared with the corresponding node operator.
3. Node operators accept their winning bids, triggering the deposit of 32 ETH into the Ethereum Deposit Contract.
4. Holders of the {B, T}-NFTs (transferable/bond, respectively) skim their rewards. Holders of the T-NFTs send exit requests to corresponding holders of B-NFTs.
5. User stakers (in eETH) can stake their ETH (<32) and receive ether.fi’s liquid staking derivative token, eETH
6. All participants can trade their ether.fi related assets in the ether.fi liquidity pool.

Any individual can trigger the redistribution of the withdrawn funds from the withdrawal safe contract to the associated parties. Today, the most common flow is for ether.fi users to mint eETH through the ether.fi dapp by depositing ETH. eETH holders subsequently earn EigenLayer Points and ether.fi Loyalty Points, and can immediately use the eETH across a growing set of live integrations across DeFi on both mainnet Ethereum, and now L2s starting with Arbitrum. ether.fi has undergone the most number of audits in the LRT space, as the Early adopter Pool was audited by Certik and Zellic, followed by main protocol audits from Nethermind, Omniscia, Solidified, and Hats Finance.

Setting the Pace of Innovation

We define ether.fi’s market opportunity as ultimately comprising both the regular liquid staking universe of protocols covered earlier, as well as the restaking world which can roughly be subdivided by approach ingo 1) LST-based restaking (in large part controlled by EigenLayer that sets caps and stipulations around LSTs), and 2) Native restaking of native ETH deposits, with withdrawal credentials pointed to an EigenPod, an EigenLayer smart contract, though there are also now restaking protocols, including ether.fi, that enable both restaking approaches.

Overall, we expect restaking market share consolidation to result, driven by winners who are able to differentiate on the basis of unique verticalized product feature sets that in turn drive strong network effects. Another emerging competitive dynamic is the prospect of the Ethereum developer community intervening in targeting staking rewards, which could drive both scaled and solo-staking validators to seek alternatives for enhanced rewards and risk such as through restaking protocols like ether.fi. Ultimately, while ether.fi already leads the pack today, we think the most predictive elements of defensibility here includes etherfi’s battle-tested team, which drives brand recognition, top DeFi integration partnerships, and the ability to deliver a unique roadmap.

Conclusion

While ether.fi today enables earning of both staking and restaking rewards without the complexities of managing validator nodes, we also see future products leaning further into on-chain TVL management, risk mitigation, and return optimization leveraging the platform technology. With its innovative technology, experienced team, and community-first, fast-shipping approach, we are excited to work with Mike and the ether.fi team as they look to grow even faster than the already rapidly-progressing Ethereum shared security vertical.

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