Mendi Finance Pioneers Innovative Leveraged Restaking Methodology
- Mendi Finance implements cutting-edge strategies to maximize staking rewards.
- Risk assessment includes liquidity management and analysis of whale impact.
Leveraged restaking has gained significant traction in the cryptocurrency world, enabling users to receive airdrops from Liquid Restaked Tokens (LRTs) in addition to earning leveraged staking rewards.
To capitalize on this emerging trend, Layer 2 solutions (L2s) and associated protocols have swiftly integrated LRTs into their ecosystems. Mendi Finance and Zero Lend have emerged as prominent players leveraging this methodology, with substantial 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
Gaining Insights into Liquidity and Position Sizing in Leveraged Restaking
When managing leveraged restaking positions, especially with wrapped ether (WETH), it is crucial to assess major economic risk indicators. Available liquidity is one such indicator that users rely on to determine the size of their positions.
Available liquidity refers to the portion of supplied liquidity that remains available for borrowing in the WETH market. Understanding the total available liquidity and the fraction previously borrowed helps users determine their entry size without significantly impacting interest rates.
Another essential tool in this methodology is the Whale Exit Simulation, which assesses the potential impact of a large lender, or “whale,” withdrawing their supply from the market. By identifying the size and number of whales on the lending side, borrowers can anticipate changes in borrower positions and interest rates.
Mendi Finance and Zero Lend possess significantly higher available liquidity compared to the whales. This indicates that the withdrawal of a whale would have a minimal impact on leveraged restaking borrowing rates.
The collateral distribution indicator plays a critical role in assessing exposure to other assets within the ecosystem. It provides insights into how lenders might react to leveraged restaking, particularly in the event of a collateral asset’s depreciation.
Open liquidations serve as general health indicators for a protocol. Ideally, the number of open liquidations would be close to zero, except for temporary increases due to market volatility. Persistent increases in open liquidations signify higher instances of bad debt, leading lenders to withdraw and discouraging new participants.
Currently, both Zero Lend and Mendi display similar numbers of open liquidations in their respective WETH markets. While zero open liquidations are preferable, the consistent downward trend in both protocols indicates active liquidations or debt repayments by users.
MENDI, the native token of Mendi Finance, is currently trading at $0.1257, displaying a 6.72% decrease over the past 24 hours. Nonetheless, it has shown solid weekly performance, with a 1.82% increase. Meanwhile, other players in the restaking sector continue to make significant advancements.
In a previous report, we highlighted Chainlink’s partnership with Eigenpie, a subDAO founded by Magpie, to enhance cross-chain liquid restaking, enabling seamless movement of LRTs across networks.
Binance Labs’ investment in Puffer Finance in January has also played a pivotal role in the development of Layer 2 networks and the promotion of the pufETH token, a noteworthy step forward for restaking on the Ethereum network.