Airdrop • MEV Capital

Institutional Investors Are Farming LRT points For Yield

MEV Capital says liquid restaking offers market-neutral ETH yields and additional point incentives.

Find the original article on Defiant.io

Liquid restaking is not just for degens. Institutional investors are also getting in on the trade.

Gytis Trilikauskis, COO of MEV Capital, said his fund initially focused on liquidity provision, arbitrage, and MEV-based strategies, but has recently pivoted to capitalize on the booming liquid restaking token (LRT) sector.

Trilikauskis noted that MEV Capital wasn’t interested in restaking until Liquid Restaking Tokens (LRTs) gave rise to new opportunities for yield generation through DeFi composability, noting that his clients expect “at least a double-digit yield.”

Professional investors are seeking to take advantage of the yield that’s generated from liquid restaking, plus the potential airdrops many of these applications are expected to do, said Trilikauskis. It’s a sign institutions are weighing that the yield from one of the fastest growing sectors in crypto is worth the potential risk that comes from taking multiple layers of protocol and smart contracts risks.

MEV Capital, which launched in late 2020, mobilizes $160 million in assets under management on behalf of institutional clients including crypto funds, high-net-worth individuals, DAOs, and other web3 projects commanding sizable treasuries.

“What we focus on is generating more Ethereum for our clients… We just want to preserve the principle that the clients are giving us and then we want to generate them some yield.”

MEV Capital moves into liquid restaking

EigenLayer, the pioneering restaking protocol, allows users to earn additional yields on top Ethereum staking rewards by also securing third-party Actively Validated Services (AVSs) at the same time EigenLayer users can either deposit liquid staking tokens (LSTs) into its capped pools or provide natively staked Ether without limit.

Liquid restaking builds on this by offering users exposure to native restaking, with depositors receiving tokens representing their restaked position. Said LRTs can then be used in DeFi protocols to generate even more yield, or traded to bypass restaking withdrawal delays. Deposits also earn “points” — which are expected to qualify holders for future airdrops from EigenLayer and LRT providers in the future.

Trilikauskis noted that MEV Capital isn’t viewing the tokens earned through points campaigns as a long-term hodl.

“I think that we are going to liquidate significant size for sure,” he said. “We are not taking on market risk with these tokens that we farm or get dropped.”

However, Trilikauskis added that the firm will communicate with its clients to establish a “middle path” should individual clients wish to maintain exposure to native tokens airdropped by either EigenLayer or LRT providers in the future.

Trilikauskis estimates MEV Capital is among the top 10 most-active liquid restakers on the three largest LST protocols — EtherFi, Kelp DAO, and Renzo Finance, in addition to holding some smaller positions on Puffer Finance. He noted that the firm is not interested in using every possible LRT protocol, acknowledging that many DeFi protocols can expose users to significant risk.

“We try to focus on what we think are going to be the industry leaders,” Trilikauskis said.

Trilikauskis said MEV Capital is actively providing liquidity for LRTs on decentralized exchanges in addition to using Pendle, a yield tokenization platform. The team is also exploring yield optimization protocols built on top of both DEXes and Pendle to generate additional returns

“Right now, since there’s a lot of hype, and there’s a lot of narrative forming around [LRTs], protocols are actively pushing integrations that would allow you to put those LRTs in DeFi,” Trilikauskis said. “It’s getting to the point where you can say you can really see DeFi’s composability at its best, and where it can lead.” While Trilikauskis acknowledged the risks associated with restaking, he noted that several projects are working to mitigate the exacerbated slashing risks associated with EigenLayer should third-party AVSs misbehave.

“You’ll be able to preemptively withdraw your stake if these protocols start doing some nasty shit that is not confined within the ruleset,” he said. “Of course, there’s a lot of risk, but you can see how these protocols can stack on one another.”

Looking beyond LRTs

Looking ahead, Trilikauskis said MEV Capital will closely monitor the growth of EigenLayer’s AVS ecosystem for opportunity, but will also be willing to exit the sector should delta-neutral strategies no longer present themselves.

“It might still be interesting to [continue restaking on EigenLayer] and keep our LRT exposure,” he said. “But if there’s going to be more opportunities on liquid staking derivatives or ETH-based assets that are not related to EigenLayer, we will go where the opportunity is… Once EigenLayer launches, once the cat is out of the bag, then we’ll need to see how the cat looks. That’s always the case with asset management, you try to find the best risk-adjusted opportunity and go there. At this moment, it looks like EigenLayer is a clear winner.”

Find the original article on The Defiant.

Press releases

DeFi points farming reshaping investment landscape

Find the original publication at Blockworks.com

As a DeFi-focused hedge fund, MEV Capital has grown comfortable with moving funds around on-chain in pursuit of higher returns, a strategy known as yield farming.

But in the last few months, the firm has added a new trick to its arsenal: Accruing points, or rewards for interacting with a protocol that may lead to payouts in a future token, on behalf of clients.

MEV Capital is farming these points especially in order to gain exposure to EigenLayer and a raft of other Ethereum restaking projects offering off-chain points to on-chain users. It’s a testament to renewed animal spirits in crypto and the excitement surrounding restaking that hedge funds like MEV Capital are now acquiring participation tallies for clients.

It all points to restaking

EigenLayer is a restaking protocol that allows the staked ether securing the Ethereum blockchain to be restaked, or used to secure other Ethereum-based blockchains and services. Liquid restaking tokens (LRTs), like ether.fi’s eETH or similar offerings from KelpDAO and Renzo, create a tokenized version of restaked ether that can be used in DeFi applications.

EigenLayer currently rewards users with points for restaking their ether, and several LRT protocols have points systems for users of the tokens.

Pendle Finance, a DeFi platform that offers tokenized versions of an asset’s APY dubbed yield tokens, has become popular for accruing points.

Through Pendle and its yield tokens, points farmers can use an LRT to earn EigenLayer points and points from the LRT protocols simultaneously. These yield tokens give investors leveraged exposure to EigenLayer and LRT points, as they’re essentially buying the rights to the points accrual from holders of Pendle’s principal tokens.

Points have been a very effective tool for bringing assets to the restaking sector. EigenLayer’s total value locked (TVL) was roughly $250 million on Dec. 18, according to DeFiLlama. That figure is over $9 billion today.

Uncertain returns

Some funds are sitting out the points mania, but there’s still money to be made from the sidelines.

Valentin Mihov, who co-founded the DeFi investment fund Finexify, told Blockworks that the fund has been using Pendle to gain elevated ether yield caused by points speculation.

Pendle’s fixed-yield products have a higher APY when the implied yield, or the market’s future estimate for yield, goes up.

Mihov said that while the points-induced higher APY is “quite nice,” his firm finds points farming too risky because the future value of the IOUs is still mostly unclear.

In some cases, points farming can be quite lucrative. When Solana-based liquid staking protocol Jito executed a points-based airdrop in December, for example, one researcher remarked that moving $40-worth in tokens around on-chain could have netted a user $10,000 in JTO tokens.

As a result, points are trading in anticipation of future airdrops. Roughly $2.7 million-worth of EigenLayer points have changed hands on the website Whales Market for an average price of around $0.18. A Messari researcher tried his hand at finding an estimate and guessed LRT points to be worth roughly $0.14 apiece.

Points farming is ‘more art than science’

Since points live off-chain, how they’ll convert to token allocations can be opaque — sometimes to the disadvantage of bigger investors.

A partner at a crypto-native investment firm told Blockworks that points are meant to bootstrap community interest in crypto projects so the tokenomic structure usually favors smaller allocations.

“The way the points typically convert [is] such that larger points farmers are usually rewarded less than smaller people, so it’s not worth putting the capital at risk in a native protocol for a very low payoff,” they said.

Chase Mayeux, managing partner at investment firm Coral, said figuring out returns on points is more “art than science.” Coral is accumulating points on EigenLayer and a number of other DeFi protocols, Mayeux said.

“There are secondary markets for points (Whale Market / Pendle), but ultimately, we are trying to accrue either tokens or points on protocols that we think will appreciate in price. Generally, you won’t know until months or years down the line whether you were correct in your theses,” Mayeux said in a Telegram message.

Clients of these investment firms may not understand the ins and outs of points farming, but points’ potential upside still tends to be attractive. MEV Capital general partner

Laurent Bourquin gave the upshot of a hypothetical conversation with a client about points farming:

“‘Do we make more money? Yes, no?’

‘Yes.’

Boom then it’s good.”

Find the original article on Blockworks.com