- Puffer Finance raised over $135 million in less than 24 hours.
- Liquid restaking protocol.
- Liquid restaking is one of the fastest emerging DeFi trends.
Puffer Finance, the latest entrant into the rapidly growing liquid restaking sector, has amassed $135 million worth of Ether deposits in the 24 hours since its inception.
The surge in deposits for this protocol ranks the company as the 5th largest liquid restaking provider behind ether.fi, Kelp DAO, Renzo, and Eigenpie.
Puffer offers DeFi users another way to re-stake Ether through its leading re-staking protocol, EigenLayer, and potentially earn additional rewards in the process.
Supporters of the project include Ethereum Foundation researcher Justin Drake and Eigenlayer founder Sreeram Kannan.
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Staking, re-staking, and liquid tokens
With the rise of re-staking, Ethereum staking terminology may become even more confusing.
Ethereum is a proof-of-stake network. This means it relies on users staking Ether, or locking up their funds, for security. As a result, stakers receive rewards.
However, staking locks up Ether, making it unusable across Ethereum DeFi. In response, the method of staking Ether and receiving receipt tokens in return that can be used in his DeFi has grown in popularity. This is called liquid staking, and the most popular protocol is his Lido Finance.
And starting in late 2023, restaking is the new hype. Restaking is the act of locking up staked Ether tokens to ensure security over the Ethereum network. The most popular re-staking protocol is EigenLayer.
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Just as liquid staking was the answer to staking, liquid restaking is the answer to restaking. This helps free up the re-staked Ether, at least by proxy, allowing that capital to be deployed into DeFi. That means more opportunities for investors.
But while liquid restaking is all the rage in DeFi circles, some warn that the practice could pose systemic risks to the Ethereum ecosystem.
How the puffer prevents slash attacks
Staking is not a risk-free endeavor.
The Ethereum network relies on validators reporting correct data to keep the network secure. If a validator stops reporting data or accidentally reports incorrect data, a slash is applied. This is a term that refers to taking a portion of Ether away from validators who do not publish correct data.
Staking Ether multiple times through re-staking further increases the risk of a slash.
Puffer addresses this risk by making validators less susceptible to slashing. The protocol plans to use in-house software called Secure-Signer. This is designed to protect against user errors and client bugs, which are the main causes of slashes.
This more secure approach to restaking allowed Puffer to gain support from the Ethereum Foundation, a nonprofit organization that supports the Ethereum ecosystem. The protocol awarded Puffer a $138,000 grant to develop Secure-Signer before raising another $5.5 million in August.
And there are points
Like many other DeFi protocols, Puffer has also launched a points system. This is an unofficial nod to users that a token airdrop may be available for early users.
Users who deposit Lido stETH liquid staking tokens to Puffer will earn points based on the amount deposited.
Point systems like this have come under heavy criticism from the DeFi community in recent weeks, but that hasn't stopped Puffer deposits from skyrocketing.
Users can earn additional points when they transfer stETH deposits from EigenLayer.
Lido's “Vampire Attack”
Another potential reason why Puffer was able to secure deposits so quickly is the planned “vampire attack” on Lido, a major liquid staking protocol.
Vampire attacks in DeFi are a type of aggressive growth strategy in which protocols target users of rival protocols by offering additional incentives.
Puffer requires users to lock up stETH in Lido in order to mint a re-staking token called pufETH. Once the protocol is fully launched later this year, Puffer plans to convert the stETH tokens backing his pufETH to Ether and restake them to permissionless validators.
If this plan is successful, it will increase Lido's market power while increasing the amount of Ether that will be re-staked natively by standalone validators, rather than being backed by liquid staking tokens issued by other protocols. It should help remove the .
Lido’s dominance in the Ether staking sector has long been a concern among the Ethereum community.
Danny Ryan, a researcher at the Ethereum Foundation, wrote in a 2022 blog post that if liquid staking providers like Lido exceed 33% of all Ether staked, their theoretical ability to manipulate block space will increase. He said there is.
According to the Dune Dashboard, created by pseudonymous crypto data researcher Hildby, Lido currently controls just under 32% of all Ether staked.
Tim Craig is DL News' DeFi correspondent based in Edinburgh. To get tips, tim@dlnews.com.
