Ether.fi to Fully Exit EigenLayer Restaking Amid Declining Returns

Article by Oliver Knight

Translated by Chopper, Foresight News

At the end of this quarter, ether.fi will remove the final structural link between its staked tokens and the restaking protocol EigenLayer. EigenPod withdrawal credentials will be removed by year-end, at which point less than 1% of assets will remain involved in restaking.

When ether.fi launched in 2024, users' deposited ETH were automatically re-staked on EigenLayer. In August of this year, the project separated the re-staking functionality from weETH. weETH, ether.fi’s most liquid and widely used DeFi collateral token, is now a standard liquid staking token. Users who still wish to participate in re-staking must separately choose another token deployed on the competing platform, Symbiotic.

Mike Silagadze, CEO of ether.fi, told CoinDesk that the decision was driven by risk considerations: “There are no longer meaningful yield opportunities in the restaking space, and stakers have become aware of the risks, so we chose to exit.”

Staking involves locking up ETH to secure the Ethereum network and earn rewards. The concept of restaking allows the same locked ETH to perform a second function: EigenLayer leases this network security capacity to other services such as oracles and data availability layers, which pay fees for this service. Depositors can earn double rewards using the same funds. Liquid restaking tokens are built on this mechanism, providing depositors with tradable receipts so they don’t have to wait locked; these tokens can be sold or used as collateral elsewhere. weETH is the largest such token.

EigenLayer’s locked assets once peaked at $19.7 billion, and the market capitalization of liquid restaking tokens more than tripled in the first six weeks of 2024. However, the fees paid by demand-side users for security services have consistently failed to cover both the base staking rewards and the additional premium, and the promised second-layer returns from restaking have never materialized.

On September 8, DefiLlama data showed that the total value locked in the restaking sector was $1.002 billion, generating only $99,977 in fees over the past week; meanwhile, the liquid staking sector locked $5.187 billion and generated $27.35 million in fees over the same period. Calculated proportionally, the yield generated by standard staking is approximately 53 times higher than that of restaking for an equivalent amount of assets.

The re-staking protocol offers almost no yield.

Two factors further diminished the incentive to participate in re-staking: the points-based incentive program for subsidized deposits is gradually ending throughout 2025; and in April 2025, the slashing mechanism was officially launched. Slashing refers to the protocol penalizing validators by confiscating a portion of their staked ETH when they engage in violations such as going offline or signing conflicting messages. This means that re-staking has shifted from a scenario with only theoretical risk to one where actual losses can occur, without any additional rewards to offset those risks.

Excluding ether.fi, the remaining projects in the sector are significantly smaller. The top five liquid staking protocols—Renzo, Kelp, Swell, Puffer Finance, and Bedrock—generated a combined gross profit of only $953,300 in the second quarter of 2026, down from $2.18 million three quarters earlier. Puffer, which raised $23 million, recorded a gross profit of just $21,590 for the quarter; Swell recorded $22,370.

DefiLlama’s data also reveals that the truly profitable aspect of these services has never been restaking itself. Take Kelp as an example: the EIGEN token rewards are recorded as $460,600 in gross revenue, with identical costs of $460,600—meaning the full rewards are distributed to depositors, leaving nothing for the protocol. The same applies to Puffer and Swell. All profits for these protocols come solely from the standard staking fees underlying the restaking.

On April 18, 2026, attackers exploited a vulnerability in the KelpDAO cross-chain bridge, minting 116,500 rsETH tokens out of thin air within 46 minutes—valued at approximately $293 million—with no underlying ETH assets backing them. The attackers deposited the forged tokens into Aave as collateral and borrowed real ETH. Over the following days, approximately $6 billion was withdrawn from Aave, with potential bad debt ranging between $123 million and $230 million. In May, Aave announced a comprehensive overhaul of its collateral and listing standards, simultaneously reviewing projects for cybersecurity, technical architecture, and price volatility risks.

Silagadze does not view this incident as a failure of the leverage mechanism. He stated: "The root cause of the Kelp theft was a security vulnerability in the cross-chain bridge, not leverage. ether.fi set extremely conservative market parameters on Aave, and we place high importance on security."

Objectively speaking, EigenLayer itself did not experience a failure; no slashing occurred, and the core re-staking mechanism remained intact. The vulnerability lay in the cross-chain bridge. This is precisely why the hacker incident severely impacted the liquid re-staking sector: the funds were lost at the upper layer—on the wrapped tokens (i.e., tradable receipts)—not at the underlying re-staking protocol. By April, holding these wrapped tokens meant assuming an additional layer of smart contract risk without receiving corresponding additional rewards. The yields from the wrapped tokens were no longer sufficient to offset their inherent risks.

Capital withdrawn from the restaking sector has not left the crypto lending market; it has simply shifted from ETH assets to USD assets.

The mainstream strategy in 2024 was: staking ETH, re-staking it, wrapping it into liquid re-staking tokens, using them as collateral for lending, and then adding more positions to layer exposure to a single asset. By 2026, similar capital operations are shifting to curated vaults. Curated vaults are a type of lending pool where external parties (vault managers)—not the lending protocol itself—decide which assets to accept and what terms to set, earning a share of the fees in return. Morpho is the largest platform in this space, with approximately $5.8 billion in total value locked.

Similar to the re-staking logic, depositors receive only a receipt, with risks set by a third party, and the receipt can be accepted by another platform as collateral.

The精选金库 also experienced a collapse similar to Kelp. On November 4, 2025, Stream Finance disclosed losses of approximately $930 million and suspended withdrawals. Its yield-bearing USD stablecoin, xUSD, designed to maintain a $1 peg, plummeted 77% in a single day. The vault manager built the vault on Morpho, where depositors deposited real stablecoins in exchange for xUSD, then borrowed stablecoins to further purchase xUSD, artificially inflating the token’s price beyond its underlying asset value. The market had been valuing xUSD at a fixed $1 rather than its true market price, so when the price crashed, the automated liquidation mechanism failed to trigger. Subsequent analysis estimated total debt exposure on lending platforms at approximately $285 million. Another USD-denominated token—65% of which was backed by Stream’s loans—collapsed by about 98% before being liquidated.

ether.fi's exit from restaking also highlights the common challenge faced by all liquid restaking protocols: when the core business no longer generates profits, what’s the next step? ether.fi’s answer is: stop being just a staking service provider.

ether.fi has now launched a crypto spending card, allowing users to make purchases without selling their crypto assets; it has also launched a lending market on the Ethereum Layer 2 network Optimism and established a series of vaults. In August this year, ether.fi further expanded into new banking services by introducing tokenized stocks, metal assets, and portfolio-backed loans built on Aave.

Silagadze believes the annual revenue potential of the neobanking sector is approximately $300 billion, 300 times the size of the DeFi market. The share of consumer card business revenue increased from 17% in January to 46% in July. He stated, “Neobanking revenue has fully offset the income gap caused by the decline in re-staking and the drop in ETH prices. We expect overall annualized revenue to increase by approximately 38% this year, while staking and re-staking revenue declines by 70%. Revenue diversification has been highly successful.”

DefiLlama's同期 data shows a different trend: ether.fi's gross profit decreased from $18.71 million in Q3 2025 to $9.99 million in Q2 2026, a 47% decline. The two sets of data are not contradictory: revenue is not equivalent to gross profit, and annualized projections do not equate to past quarterly financial results; however, ether.fi has not disclosed the methodology used to calculate the 38% growth rate.

ether.fi Q2 2026 gross profit by business line

In the second quarter, credit card fees generated $3.14 million in gross profit. EigenLayer’s restaking business contributed $2.87 million, surpassing both ETH base staking and the combined revenue from treasury, lending, and management fees. According to DefiLlama, at the time of exiting the space, restaking was ether.fi’s second-largest revenue-generating business.

Silagadze objects to DefiLlama’s methodology. Cashback rewards are counted simultaneously as $5.83 million in revenue and $5.83 million in costs on DefiLlama’s platform, contributing nothing to profit. He explained: “This cashback was initially subsidized by third-party partners, but the rules have since changed—current revenue reporting no longer includes such subsidies. However, DefiLlama’s data for the most recent quarter still uses the old methodology.” He also noted that migrating the cash treasury to Aave replaced a custom debt management system, reducing risk. “We repeatedly informed users, who voluntarily opted in to this change.”

This does not mean that restaking technology itself has failed. EigenLayer’s data availability service, EigenDA, achieves a mainnet throughput of up to 100 MB/s and continues to secure the largest asset volume in the industry. ether.fi’s migration to Symbiotic for restaking has already integrated over 50 networks.

The core issue is not whether re-staking technology can work, but whether it can generate sufficient revenue to support the business model. For protocols that treat re-staking as their sole core product, the answer is no.

EigenLayer has also stopped promoting restaking as its flagship product, rebranding as EigenCloud and now focusing on verifiable computation to help applications prove the authenticity and reliability of off-chain computations; restaked collateral has become underlying infrastructure rather than a core product for sale. Its locked value has declined from a peak of $220.6 billion in August 2025 to $5.1 billion.

The industry has yet to reach a consensus: while staked amounts have shrunk by approximately 75%, the volume of services protected has not decreased—does this represent a sector failure, or was the previous scale four times larger than actual demand? Silagadze did not wait for this debate to settle; he proactively led ether.fi out of the restaking赛道.