Ether.fi pivots to a crypto neobank model as restaking yields decline, impacting profitability across the sector.
The decline of restaking yields has prompted Ether.fi, a prominent liquid restaking protocol, to shift its strategy towards establishing a crypto neobank.
Ether.fi's Strategic Shift
As the profitability of restaking diminishes, Ether.fi plans to sever its ties with EigenLayer by the end of the quarter. CEO Mike Silagadze cited the lack of yield opportunities and increasing risks as the driving forces behind this decision. Currently, less than 1% of assets are restaked, and Ether.fi will discontinue EigenPod withdrawal credentials by year-end.
- Despite raising $10 billion through restaking, the protocol earned only $99,977 in fees last week, while traditional liquid staking generated approximately 53 times more.
- The five leading liquid restaking tokens reported a combined gross profit of $953,350 in the last quarter, a sharp decline from $2.18 million three quarters ago.
- Ether.fi had initially auto-restaked deposits on EigenLayer but transitioned to a standard liquid staking model in August 2026 due to poor yield outcomes.
Silagadze remarked, "There were no meaningful yield opportunities in restaking, so we decided it made sense to exit," as reported to CoinDesk.
Restaking's Declining Appeal
Restaking, which allowed users to earn dual yields by locking ETH for both staking and additional services through EigenLayer, has lost its allure. The total restaking market held $10.02 billion as of September 8, generating just $99,977 in fees, while the liquid staking sector, valued at $51.87 billion, produced $27.35 million in fees. This disparity highlights the more lucrative nature of standard staking.
Several factors contributed to the decline in restaking incentives, including the end of points programs that incentivized deposits and the introduction of slashing penalties for operator misbehavior. This created a risk for stakers without corresponding yields.
Impact of the Kelp Hack
The recent cyberattack on Kelp's cross-chain bridge, which resulted in the creation of $293 million in unsupported rsETH tokens, further destabilized the restaking landscape. This incident led to significant capital flight from the Aave platform and forced revisions to collateral standards to enhance security.
Silagadze clarified that the hack was due to inadequate security in cross-chain operations, not leverage issues. While EigenLayer itself remained secure, the hack raised concerns about the vulnerabilities of liquid restaking tokens.
Capital Movement and New Directions
The capital exiting restaking has shifted from ETH to fiat currencies. Ether.fi is now focusing on its crypto neobank, which allows users to spend crypto assets without selling them, and is expanding its offerings to include tokenized stocks and metals. Silagadze estimates the neobanking market generates around $300 billion annually, far exceeding DeFi revenues.
Despite a 70% decline in staking and restaking revenue, Ether.fi's neobanking efforts have allowed it to project a 38% increase in overall revenue this year. The neobank's contribution to revenue has grown significantly, underscoring a successful diversification strategy.
However, data from DefiLlama indicates that Ether.fi's gross profit actually fell by 47% from $18.71 million to $9.99 million over the past year. Silagadze disputed some of these figures, particularly regarding user cashback rewards that have shifted from revenue reporting.
Technology Remains Robust
Despite the challenges faced by restaking protocols, the underlying technology has not failed. EigenDA, part of EigenLayer, continues to operate effectively. The core issue lies not in the functionality of restaking, but in its ability to sustain a profitable business model. EigenLayer has also rebranded as EigenCloud, shifting focus away from restaking to verifiable computing, with its holdings significantly reduced from their peak.
