Finance The decline of the restaking phenomenon has led to major protocols in the space grappling with profitability.

Ether.fi Shifts Focus Amid Diminishing Restaking Yields

As restaking yields have dwindled and smart contract risks have escalated, Ether.fi, a leading liquid restaking protocol, has opted to pivot away from its primary operations to establish a crypto neobank.

By the end of this quarter, Ether.fi will eliminate its last connection to EigenLayer, with CEO Mike Silagadze stating that the decision was influenced by the lack of significant yield opportunities in restaking alongside rising risks.

  • Currently, less than 1% of assets remain restaked, and Ether.fi plans to remove EigenPod withdrawal credentials by year-end.
  • Despite securing $10 billion through restaking, the protocol generated only $99,977 in fees over the past week, while traditional liquid staking produced approximately 53 times that amount.
  • The five largest liquid restaking tokens reported a combined gross profit of $953,350 last quarter, a significant drop from $2.18 million three quarters prior.

Initially, Ether.fi's deposits were automatically restaked on EigenLayer when it launched in 2024. However, in August 2026, the company removed restaking from weETH, its circulating token, transitioning it to a standard liquid staking token. Users now have to choose a separate token on a competing platform for restaking.

Silagadze explained, "There were no meaningful yield opportunities in restaking and there was some perceived risk from stakers, so we decided it made sense to exit," as reported to CoinDesk.

The Original Intent of Restaking

Staking involves locking up ETH to secure the Ethereum network in exchange for yield. The concept of restaking allowed the same locked ETH to serve a dual purpose, with EigenLayer renting that security to other services like oracles, providing an additional yield. Liquid restaking tokens offered a tradable receipt for depositors, allowing them to utilize collateral rather than simply waiting.

EigenLayer peaked at $19.7 billion, with liquid restaking tokens increasing over 1,000% in the first six weeks of 2024. However, the services that utilized this security failed to compensate adequately for both base staking yields and a premium, resulting in the promised second yield not materializing.

As of September 8, the restaking category held $10.02 billion and generated just $99,977 in fees, while the liquid staking category, with $51.87 billion, produced $27.35 million in fees. This disparity indicates that standard staking earns approximately 53 times more per dollar secured.

Two significant developments further diminished the incentives for restaking: the conclusion of points programs that subsidized deposits and the introduction of slashing penalties for misbehavior by operators. This created a tangible risk for stakers without any additional yield to offset it.

Aside from Ether.fi, the rest of the sector remains relatively small. The five largest remaining liquid restaking tokens—Renzo, Kelp, Swell, Puffer Finance, and Bedrock—reported a collective gross profit of $953,350 in Q2 2026, down from $2.18 million three quarters earlier. Puffer, which raised $23 million, registered only $21,590 for the quarter, while Swell posted $22,370.

The Kelp Hack Incident

On April 18, a cyberattack targeted Kelp's cross-chain bridge, allowing the creation of 116,500 rsETH worth around $293 million without any backing ETH. This incident led to approximately $6 billion leaving the Aave platform in the subsequent days, with potential losses ranging from $123 million to $230 million. In response, Aave revised its collateral listing standards to enhance security assessments.

Silagadze clarified that the Kelp hack stemmed from poor security practices regarding cross-chain operations, rather than leverage issues. "The ether.fi Aave market has very conservative parameters and we have a strong commitment to security," he asserted.

While EigenLayer itself remained intact without any slashing or failures in its restaking mechanisms, the hack significantly impacted liquid restaking tokens. The losses occurred in the tradeable wrappers rather than in the restaking itself, leading to a perception that these tokens were accepting additional vulnerabilities without any extra yield.

Capital Migration from Restaking

The capital that exited restaking did not vanish from crypto lending but transitioned from ETH to fiat currencies. In 2024, the pattern involved staking ETH, restaking it, wrapping it in liquid restaking tokens, borrowing against that, and increasing exposure to one asset. By 2026, similar behaviors emerged in curated vaults, where an external curator determines which assets are accepted in exchange for a share of the fees.

Curated vaults have already faced their own crises, evidenced by Stream Finance's disclosure of approximately $93 million in losses and withdrawal freezes in November 2025. Its xUSD token, intended to maintain a $1 value, plummeted by 77% in a single day due to inflated valuations against real stablecoins.

The departure from restaking raised a critical question for Ether.fi and similar protocols: What remains of the business model once the foundational elements cease to deliver returns? Ether.fi's response was to transition away from being a staking company altogether.

Ether.fi's New Direction

Ether.fi has evolved into a crypto neobank, offering a card for users to spend against their crypto assets without selling them, alongside a borrowing market on the Ethereum layer-2 network Optimism. In August, the platform expanded to include tokenized stocks and metals. Silagadze estimates the neobanking market generates about $300 billion annually, significantly surpassing DeFi's revenues.

The card's contribution to monthly revenue surged from 17% in January to 46% in July. "Neobank revenue has fully replaced the revenue lost from restaking and lower ETH price," Silagadze noted, projecting a 38% overall revenue increase this year, despite a 70% decline in staking and restaking revenue. He believes that diversifying revenue sources has proven successful.

However, DefiLlama's data indicates a different trend, showing Ether.fi's gross profit declined by 47%, from $18.71 million in Q3 2025 to $9.99 million in Q2 2026. Both perspectives can coexist, as gross revenue and gross profit are not the same, but Ether.fi has yet to clarify the basis for its projected growth rate.

In Q2, card fees generated $3.14 million in gross profit, while EigenLayer restaking accounted for $2.87 million, outpacing core ETH staking and other fees combined. At the time of Ether.fi's exit from restaking, it was still one of its more profitable segments.

Silagadze has disputed a component of DefiLlama's figures, particularly regarding cashback rewards for card users, which previously appeared in their revenue but no longer do, thus affecting current profit reporting.

Moreover, he emphasized that users were informed of changes as they occurred, including the transition of cash vaults to Aave to mitigate risks.

The Technology Remains Intact

It is important to note that the technology itself has not failed. EigenDA, part of EigenLayer, continues to operate effectively at a high throughput and remains a leading service by secured value. Symbiotic, where Ether.fi relocated its restaking operations, has integrated over 50 networks.

The core issue was not whether restaking functioned correctly, but whether it could generate sufficient revenue to sustain a business model. For those protocols that relied entirely on restaking, the conclusion has been a resounding no.

EigenLayer has also rebranded itself, now called EigenCloud, focusing on verifiable computing instead of restaking as a primary offering, with its current holdings significantly reduced from their peak.