The Rise of LST-Fi and LRT-Fi

Defining LST-Fi and LRT-Fi

LST-Fi refers to financial activities involving LSTs: tokens that represent staked ETH or other assets while remaining liquid and transferable. These tokens accrue staking rewards and can be used in DeFi protocols without requiring users to unstake their assets. LST-Fi began with simple use cases such as depositing stETH into lending pools or liquidity farms, but it has evolved into a diverse ecosystem where LSTs function as collateral, base assets for stablecoin issuance, and core components in structured yield strategies.

LRT-Fi, in contrast, is a newer category that builds on LST-Fi by incorporating restaking logic. LRTs are more complex than LSTs because they represent capital that is not only earning base-layer staking rewards but also securing additional decentralized services through EigenLayer or other restaking protocols. LRT-Fi introduces restaking-specific yield mechanisms, such as AVS fees and EigenLayer points, on top of traditional DeFi yield farming. The result is a layered strategy in which one token can simultaneously earn three or more types of rewards, depending on how it is deployed.

The distinction is important because it defines different risk profiles and reward sources. LST-Fi deals primarily with Ethereum consensus-level risk, while LRT-Fi introduces application-layer risk through actively validated services and restaking contracts. As such, users and protocols treat these assets differently, even though both share similar composability characteristics.

How LSTs and LRTs Are Used in DeFi

LSTs have long been integrated into lending and trading protocols due to their predictable yield, relatively low volatility, and strong market demand. Protocols like Aave and Compound accept stETH and rETH as collateral, while Curve and Balancer host LST-based liquidity pools that facilitate swaps between LSTs, ETH, and stablecoins. These integrations allow users to unlock liquidity without selling their staked assets, while continuing to earn staking rewards in the background.

LRTs are now being adopted in similar ways. For example, ezETH from Renzo and eETH from Ether.fi are being deposited into money markets such as Gearbox and Morpho, where users can borrow stablecoins or leverage their positions. On Pendle, LRTs are being split into principal and yield tokens, allowing users to trade future restaking rewards or lock in fixed income strategies. Some protocols have even begun to build stablecoins backed entirely by LRT collateral, using the predictable nature of AVS rewards to model long-term value and redemption logic.

These use cases reflect a broader trend in DeFi: the transformation of passive staking assets into active, productive financial instruments. By unlocking additional yield layers and enabling composability, both LSTs and LRTs have become critical components in the construction of modular yield portfolios.

Case Studies and Protocol Examples

Pendle

Pendle has emerged as one of the most active LRT-Fi venues. It enables users to deposit LRTs and split them into two separate assets: the principal token (PT) and the yield token (YT). The PT represents the base value of the LRT and can be traded like a zero-coupon bond, while the YT represents future restaking rewards and AVS fees. This structure allows for advanced strategies such as fixed-yield farming, speculative reward trading, or yield hedging.

Gearbox

Gearbox integrates LRTs into its leveraged credit accounts, allowing users to farm rewards with borrowed stablecoins while maintaining exposure to restaked ETH. For example, a user could deposit ezETH, borrow USDC, and farm with both assets in a risk-adjusted portfolio that compounds staking, restaking, and DeFi incentives.

Prisma Finance

Prisma Finance has introduced a model where LRTs can be used to mint stablecoins, similar to how MakerDAO uses ETH or LSTs to back DAI. This expands the use of LRTs into the stablecoin market and allows restaked assets to serve as a foundation for decentralized liquidity.

Protocols like Kelp DAO and Swell have also built native DeFi integrations into their LRT issuance processes. These integrations allow users to automatically stake, restake, and deploy their tokens into curated DeFi vaults or index products, creating streamlined yield aggregation pipelines.

Ether.fi’s “Mint • Spend • Earn” campaign represents a retail-facing approach to LRT-Fi. It allows users to mint a spending card backed by restaked ETH, while continuing to earn staking and EigenLayer rewards. This shows how LRT-Fi strategies can be extended into consumer finance, not just capital markets.

Reward Stacking and the DeFi Meta

One of the core reasons behind the popularity of LRT-Fi is reward stacking. In a typical LRT-Fi position, users receive staking rewards from Ethereum, AVS incentives from EigenLayer, and points or airdrop allocations from LRT issuers. When these tokens are deployed into DeFi protocols, users may also receive protocol-native rewards, interest, or farming incentives.

This compounding effect creates extremely high yield potential, especially when protocols layer points campaigns or retroactive reward systems on top of existing incentive structures. For instance, depositing ezETH into Pendle allows users to earn Renzo points, Pendle points, EigenLayer points, and trading fees, all simultaneously!

This model has created a new DeFi meta centered around restaking yield maximization. Communities form around high-yield strategies, new front-ends emerge to track multi-token rewards, and risk models adapt to evaluate composite positions rather than individual tokens.

However, this yield stacking also increases risk complexity. Users are exposed to multiple layers of smart contract risk, protocol governance changes, and slashing events from AVSs. The ability to maximize yield depends on careful management of liquidity, composability, and volatility across these layers.

Liquidity, Risk, and Infrastructure Gaps

Despite its rapid growth, LRT-Fi is still an emerging sector with infrastructure limitations. Liquidity fragmentation is a persistent issue. Since each LRT is tied to a specific issuer and validator set, secondary markets often lack depth compared to more established LSTs. This limits trading opportunities and can create pricing discrepancies between similar LRTs.

Risk modeling is another challenge. Because LRTs represent delegated restaking exposure, they carry slashing risk from EigenLayer’s AVSs. Most DeFi protocols treat LRTs as high-grade collateral, but few have mechanisms in place to respond to slashing events or AVS failures. This creates potential systemic risks if multiple protocols integrate the same LRT without accounting for tail-end security events.

Interoperability is also underdeveloped. LRTs are currently tied to Ethereum mainnet, and while protocols like Symbiotic are experimenting with cross-chain implementations, most LRT-Fi activity remains siloed. Bridging LRTs to other chains or rollups introduces additional complexity, including oracle dependencies and governance fragmentation.

Finally, transparency around validator behavior and restaking strategy remains limited. While protocols provide dashboards and reward breakdowns, users often lack clarity on which AVSs their capital is securing and what the associated risks are. Standardization of reporting, validator scoring, and AVS disclosures will be critical for long-term growth.