• Mendi Finance leverages advanced strategies to maximize staking rewards.
• Key risk indicators include liquidity management and whale impact analysis.

Leveraged restaking has become a popular cryptocurrency method, allowing users to receive airdrops from Liquid Restaked Tokens (LRTs) in addition to leveraged staking payouts.

Layer 2 solutions (L2s) and associated protocols have quickly included LRTs into their ecosystems, capitalizing on this emerging trend. Mendi Finance and Zero Lend are two prominent players who use this method and have significant Total Value Locked (TVL).

Leveraged Restaking On Linea

Leveraged restaking has become a popular strategy to earn airdrops from LRTs on top of leveraged staking rewards. L2s and their protocols have taken advantage of this by quickly onboarding LRTs into their ecosystem. pic.twitter.com/8JZT4fvfRV

— IntoTheBlock (@intotheblock) July 18, 2024

Understanding Liquidity and Position Sizing in Leveraged Restaking

When handling leveraged restaking positions, particularly with wrapped ether (WETH), major economic risk indicators must be examined. Available liquidity is one of the major indicators that customers use to determine the size of the position they can enter.

Available liquidity is the amount of supplied liquidity that is still available for borrowing in the WETH market. Users can better decide their entry size by understanding the total available liquidity and the fraction previously borrowed without significantly affecting interest rates.

Another important tool is the Whale Exit Simulation, which depicts the possible impact of a large lender, or “whale,” withdrawing their supply from the marketplace. Knowing the size and number of whales on the lending side allows borrowers to anticipate changes in borrower positions and interest rates.

Mendi and Zero Lend have significantly more available liquidity than the whales. This suggests that a whale’s withdrawal would have a small impact on leveraged restaking borrowing rates.

The collateral distribution indicator is critical for assessing exposure to other assets in the ecosystem. This indication provides insight into how lenders may react to leveraged restaking, particularly if a collateral asset depreciates.

Open liquidations, another general health indication of a protocol, should be at or near zero, save for transient volatility increases. Persistent increases in open liquidations indicate the prevalence of bad debt, forcing lenders to withdraw and discouraging new ones.

Currently, both Zero Lend and Mendi have similar numbers of open liquidations in their respective WETH markets. While having no open liquidations is the ideal condition, both protocols show a consistent decreasing trend, indicating active liquidations or debt payback by users.

MENDI, Mendi Finance’s native token, is currently trading at $0.1257, down 6.72% over the last 24 hours. Despite this, its weekly performance remains solid, with an increase of 1.82%. Meanwhile, other players in the restaking sector are also making significant strides.

According to our prior report, Chainlink has teamed with Eigenpie, a Magpie-founded subDAO, to improve cross-chain liquid restaking, letting users smoothly move LRTs across networks.

Furthermore, Binance Labs’s investment in Puffer Finance in January has aided in the development of Layer 2 networks as well as the promotion of the pufETH token, a significant step forward for restaking on the Ethereum network.