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Institutional Investors Are Farming Liquid Restaking Tokens For Yield – The Defiant

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MEV Capital says liquid staking offers market-neutral ETH yields.

Liquid restaking is not just for degens. Institutional investors are also getting in on the trade.

Gytis Trilikauskis, COO of MEV Capital, said his fund initially focused on liquidity provision, arbitrage, and MEV-based strategies, but has recently pivoted to capitalize on the booming liquid restaking token (LRT) sector.

Trilikauskis noted that MEV Capital wasn’t interested in restaking until Liquid Restaking Tokens (LRTs) gave rise to new opportunities for yield generation through DeFi composability, noting that his clients expect “at least a double-digit yield.”

Professional investors are seeking to take advantage of the yield that’s generated from liquid restaking, plus the potential airdrops many of these applications are expected to do, said Trilikauskis. It’s a sign institutions are weighing that the yield from one of the fastest growing sectors in crypto is worth the potential risk that comes from taking multiple layers of protocol and smart contracts risks.

MEV Capital, which launched in late 2020, mobilizes $160 million in assets under management on behalf of institutional clients including crypto funds, high-net-worth individuals, DAOs, and other web3 projects commanding sizable treasuries.

“What we focus on is generating more Ethereum for our clients… We just want to preserve the principle that the clients are giving us and then we want to generate them some yield.”

MEV Capital moves into liquid restaking

EigenLayer, the pioneering restaking protocol, allows users to earn additional yields on top Ethereum staking rewards by also securing third-party Actively Validated Services (AVSs) at the same time EigenLayer users can either deposit liquid staking tokens (LSTs) into its capped pools or provide natively staked Ether without limit.

Liquid restaking builds on this by offering users exposure to native restaking, with depositors receiving tokens representing their restaked position. Said LRTs can then be used in DeFi protocols to generate even more yield, or traded to bypass restaking withdrawal delays. Deposits also earn “ points” — which are expected to qualify holders for future airdrops from EigenLayer and LRT providers in the future.

Trilikauskis noted that MEV Capital isn’t viewing the tokens earned through points campaigns as a long-term hodl.

“I think that we are going to liquidate significant size for sure,” he said. “We are not taking on market risk with these tokens that we farm or get dropped.”

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However, Trilikauskis added that the firm will communicate with its clients to establish a “middle path” should individual clients wish to maintain exposure to native tokens airdropped by either EigenLayer or LRT providers in the future.

Trilikauskis estimates MEV Capital is among the top 10 most-active liquid restakers on the three largest LST protocols   EtherFi, Kelp DAO, and  Renzo Finance, in addition to holding some smaller positions on  Puffer Finance. He noted that the firm is not interested in using every possible LRT protocol, acknowledging that many DeFi protocols can expose users to significant risk.

“We try to focus on what we think are going to be the industry leaders,” Trilikauskis said.

Trilikauskis said MEV Capital is actively providing liquidity for LRTs on decentralized exchanges in addition to using Pendle, a yield tokenization platform. The team is also exploring yield optimization protocols built on top of both DEXes and Pendle to generate additional returns

“Right now, since there’s a lot of hype, and there’s a lot of narrative forming around [LRTs], protocols are actively pushing integrations that would allow you to put those LRTs in DeFi,” Trilikauskis said. “It’s getting to the point where you can say you can really see DeFi’s composability at its best, and where it can lead.” While Trilikauskis acknowledged the risks associated with restaking, he noted that several projects are working to mitigate the exacerbated slashing risks associated with EigenLayer should third-party AVSs misbehave.

“You’ll be able to preemptively withdraw your stake if these protocols start doing some nasty shit that is not confined within the ruleset,” he said. “Of course, there’s a lot of risk, but you can see how these protocols can stack on one another.”

Looking beyond LRTs

Looking ahead, Trilikauskis said MEV Capital will closely monitor the growth of EigenLayer’s AVS ecosystem for opportunity, but will also be willing to exit the sector should delta-neutral strategies no longer present themselves.

“It might still be interesting to [continue restaking on EigenLayer] and keep our LRT exposure,” he said. “But if there’s going to be more opportunities on liquid staking derivatives or ETH-based assets that are not related to EigenLayer, we will go where the opportunity is… Once EigenLayer launches, once the cat is out of the bag, then we’ll need to see how the cat looks. That’s always the case with asset management, you try to find the best risk-adjusted opportunity and go there. At this moment, it looks like EigenLayer is a clear winner.”

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