Lido Co-Founders and Paradigm’s Stealthy Move: Backing a New DeFi Challenger in the Battle for Supremacy

By Lars Weer Last updated May 14, 2024

Top figures from the leading liquid staking protocol, Lido, in conjunction with the venture capital powerhouse Paradigm, are clandestinely sponsoring a new enterprise called Symbiotic. Emerging in the burgeoning “restaking” sector, this novel initiative could potentially rival existing platforms, according to insiders familiar with the development.
Documents acquired provide intricate details regarding the project’s operation.
The advent of a new player in this domain, supported by well-funded backers, signals a possible transformation in the decentralized finance (DeFi) landscape.

<p>In 2023, Lido's co-founders have reportedly joined forces with Paradigm to back Symbiotic, a company poised to compete against EigenLayer, an influential restaking service that has rapidly gained prominence. Konstantin Lomashuk and Vasiliy Shapovalov, through their venture firm Cyber Fund, along with Paradigm, have thrown their weight behind this new venture.</p>

<p>Documentation reveals that Symbiotic enables users to utilize Lido's staked ether (stETH) and other prominent assets that don't natively integrate with EigenLayer for restaking purposes.</p>

<p>Symbiotic, developed by the team behind the Stakemind staking service, is designed as a permissionless restaking protocol. This protocol aims to facilitate decentralized networks in coordinating node operators and ensuring economic security, based on information from internal documents.</p>

<p>Although marked as "preliminary" and "not for distribution," the documents indicate ongoing discussions with various entities in the nascent restaking ecosystem about potential integrations with Symbiotic.</p>

<p>Despite repeated requests, representatives from Paradigm, Symbiotic, and Cyber Fund have declined to provide any remarks.</p>

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  <figcaption tabindex="0"><span>Internal documents illustrating collateral creation using an ERC20 token. The process will be streamlined for users when depositing into a vault.</span></figcaption>
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<h2>Restaking Arena: An Emerging Competitor</h2>

<p>A few years ago, Lido revolutionized DeFi by creating a protocol that enabled users to stake cryptocurrency on Ethereum while retaining liquidity through the stETH token. This innovation propelled Lido to the forefront of decentralized finance, amassing $27 billion in deposits and raising concerns about its dominant influence.</p>

<p>However, Lido's market position has been challenged recently due to a shift in user preferences toward EigenLayer, a newer restaking service that allows users to help secure other networks by restaking Ethereum's native ETH token.</p>

<p>EigenLayer has garnered substantial traction, attracting $16 billion in deposits since its inception. Symbiotic intends to offer a similar service, allowing decentralized applications, termed actively validated services (AVSs), to secure each other. Users will be able to restake assets from various crypto protocols to support these AVSs, earning rewards in return.</p>

<p>The critical distinction between Symbiotic and EigenLayer lies in asset compatibility. Symbiotic accepts deposits of any ERC-20 token, directly integrating with Lido's staked ETH (stETH) and thousands of other assets, whereas EigenLayer only supports ETH tokens.</p>

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  <figcaption tabindex="0"><span>Details from internal documents illustrating Symbiotic's interconnected components.</span></figcaption>
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<p>Interestingly, Paradigm initially sought to invest in EigenLayer, but co-founder Sreeram Kannan opted for funding from rival venture capital firm Andreessen Horowitz instead, according to sources. Paradigm then decided to back a competing project.</p>

<h2>Restaking Market Outlook: Analogies and Potential</h2>

<p>The strong interest in restaking signifies the growing appeal of this sector among investors and companies seeking to harness its potential. An example is Karak, another restaking startup, which secured investment from Coinbase and others, as reported in April.</p>

<p>Anonymously speaking, a restaking infrastructure operator planning to integrate with Symbiotic highlighted the market's potential, comparing it to Uber and Lyft in its predicted scale and impact.</p>

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  <figcaption tabindex="0"><span>Internal documents showcasing how ERC20 tokens can serve as collateral, simplifying deposits into vaults.</span></figcaption>
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<p>Symbiotic's strong backing by Cyber Fund and Paradigm positions it as a significant contender against EigenLayer. This move also reflects Lido insiders' concern regarding EigenLayer's increasing influence in the restaking domain.</p>

<p>Despite Lido's current status as the largest DeFi protocol on Ethereum, its future market leadership might heavily depend on its approach to restaking.</p>

<p>Recently, Lido DAO proposed the formation of a "Lido Alliance" to promote stETH's role in the restaking trend. The statement underscored the importance of recognizing synergistic projects that align with Lido's values to support Ethereum's decentralization.</p>

<p>While Lido isn't directly linked to Symbiotic, the restaking startup aligns with the proposed Lido Alliance framework.</p>

<p>In contrast to EigenLayer, Symbiotic will exclusively accept ERC-20 tokens, including Lido's staked ETH (stETH), rather than ETH deposits.</p>

<h2>Engagements with Restaking Enterprises</h2>

<p>Symbiotic's inclusive collateral strategy aims to create a fully permissionless protocol, granting applications significant flexibility in adapting the platform to their needs.</p>

<p>Mike Silgadze, co-founder of Ether.Fi, a leading restaking protocol, expressed enthusiasm for Symbiotic's innovative and decentralized approach.</p>

<p>Renzo, another significant restaking service, is reportedly in talks to integrate with Symbiotic post-launch, as per sources connected to both entities.</p>

<p>Although Symbiotic has not set a public release date, several sources anticipate an operational launch by the end of this year.</p>