- Puffer Finance has amassed over $135 million in less than 24 hours.
- It is a liquid restaking protocol.
- Liquid restaking is one of fast-emerging DeFi trends.
Puffer Finance, the latest entrant to the rapidly-growing liquid restaking sector, has amassed over $135 million worth of Ether deposits in the 24 hours since its launch.
The protocol’s soaring deposits rank it as the fifth-largest liquid restaking provider behind ether.fi, Kelp DAO, Renzo and Eigenpie.
Puffer offers DeFi users another way to restake their Ether through EigenLayer — the leading restaking protocol — while potentially earning extra rewards in the process.
The project’s backers include Ethereum Foundation researcher Justin Drake and EigenLayer founder Sreeram Kannan.
Staking, restaking, and liquid tokens
With restaking’s rise, Ethereum’s staking lingo may also be getting a lot more confusing.
Ethereum is a proof-of-stake network, meaning it relies on users staking Ether — locking up funds — for its security. Stakers receive rewards as a result.
But staking locks up Ether, meaning it cannot be used across Ethereum DeFi. In response, a way to stake Ether and receive a receipt token that can be used in DeFi in return grew in popularity. That’s called liquid staking, and the most popular protocol is Lido Finance.
And since late 2023, restaking has become the new hype. Restaking is the practice of locking up staked Ether tokens to secure more than just the Ethereum network. The most popular restaking protocol is EigenLayer.
Now liquid restaking is the answer to restaking as liquid staking was the answer to staking. It helps free up restaked Ether — at least by proxy — so that the capital can be deployed in DeFi. That means more opportunities for investors.
But while liquid restaking is all the rage in DeFi circles, there are some who warn the practice could pose systematic risks to the Ethereum ecosystem.
How Puffer prevents slashing
Staking isn’t a risk-free endeavour.
The Ethereum network relies on validators reporting the correct data to keep the network secure. If validators stop reporting data, or report incorrect data by accident, they get slashed — a term that refers to taking some Ether from validators who don’t publish the correct data.
By staking Ether multiple times through restaking, the risk of slashing gets compounded.
Puffer addresses this risk by making it harder for its validators to get slashed. The protocol plans to use a piece of in-house software called a Secure-Signer, which is designed to protect against user error and client bugs – two of the leading causes of slashing.
This safer approach to restaking has helped Puffer gain the support of the Ethereum Foundation — a nonprofit organisation that supports the Ethereum ecosystem. It awarded Puffer a $138,000 grant for the development of its Secure-Signer before the protocol raised an additional $5.5 million in August.
And there’s points
Like so many other DeFi protocols, Puffer has also launched a points system — an unofficial nod to users that a token airdrop may be coming for early users.
Users who deposit Lido stETH liquid staking tokens to Puffer can earn points depending on how much they deposit.
Although such points systems have received heavy criticism from the DeFi community in recent weeks, that hasn’t stopped Puffer deposits from soaring.
Users can earn extra points if they transfer over their stETH deposits from EigenLayer.
A Lido ‘vampire attack’
Another potential reason Puffer has secured deposits so fast is its planned ‘vampire attack’ against leading liquid staking protocol Lido.
In DeFi, a vampire attack is a type of aggressive growth strategy where a protocol targets users of a rival protocol by offering additional incentives.
Puffer requires users to lock up Lido’s stETH to mint its restaking token called pufETH. Once the protocol fully launches later this year, Puffer will convert the stETH tokens backing pufETH into Ether and restake them itself in permissionless validators.
If successful, the plan should help chip away at Lido’s market dominance while increasing the amount of Ether restaked natively — though standalone validators instead of backed by liquid staking tokens issued by other protocols.
Lido’s dominance in the Ether staking sector has long been a point of concern among the Ethereum community.
If a liquid staking provider such as Lido exceeds 33% of all Ether staked, it has the theoretical capability to manipulate block space, Ethereum Foundation researcher Danny Ryan said in a 2022 blog post.
Lido currently controls just under 32% of all staked Ether, per a Dune dashboard created by pseudonymous crypto data researcher hildobby.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at email@example.com.