Kelp DAO Restaked ETH

Kelp DAO Restaked ETH (rsETH): Ethereum's Second-Largest Liquid Restaking Token

Kelp DAO Restaked ETH (rsETH) has emerged as the second-largest liquid restaking token on Ethereum, with approximately $2 billion in total value locked across more than 40 DeFi platforms. The token represents a claim on Ether deposited into EigenLayer's restaking infrastructure, allowing holders to earn staking rewards while maintaining access to their capital for use throughout decentralized finance.

rsETH currently trades around $3,500, with a circulating supply of approximately 350,000 tokens and a market capitalization exceeding $1.2 billion. The protocol has attracted over 575,000 ETH (ETH) into its restaking contracts, with rsETH available on more than ten layer-2 networks including Arbitrum, Optimism, and Base.

The token addresses a specific structural problem: EigenLayer requires users to lock their Ether to secure Actively Validated Services, but this capital commitment eliminates liquidity. rsETH functions as a receipt token that unlocks that liquidity, allowing restakers to simultaneously earn EigenLayer rewards and deploy their capital elsewhere.

From Stader Labs to Liquid Restaking Infrastructure

Kelp DAO launched in November 2023, founded by Amitej Gajjala and Dheeraj Borra, the same team behind Stader Labs, an established liquid staking protocol. Gajjala previously served as head of strategy at Swiggy, India's largest food technology company, while Borra brought engineering experience from LinkedIn, PayPal, and Blend Labs.

The founding team recognized in late 2022 that restaking would attract substantial capital flows, potentially draining liquidity from existing DeFi protocols.

Their thesis centered on building a liquidity layer that would complement rather than compete with restaking infrastructure.

The protocol released its beta version on November 22, 2023, and quickly captured market share. Within the first fifteen days of operation, Kelp channeled over 10% of all EigenLayer deposits through its platform, establishing itself as a meaningful player in the nascent liquid restaking sector.

In May 2024, Kelp DAO closed a $9 million private token sale at a $90 million fully diluted valuation. SCB Limited and Laser Digital co-led the round, with participation from Bankless Ventures, Hypersphere Ventures, Draper Dragon, GSR, HTX Ventures, and DWF Ventures. Laser Digital's involvement signals potential institutional distribution channels, as the firm serves traditional financial clients seeking exposure to Ether staking and restaking yields.

How rsETH Routes Capital Through EigenLayer

The rsETH system operates by pointing Ethereum validators' withdrawal credentials to EigenPods, the smart contract structures that EigenLayer uses to manage restaked assets. When users deposit native ETH or liquid staking tokens such as stETH (STETH), sfrxETH (SFRXETH), or ETHx (ETHX), they receive rsETH at the prevailing exchange rate.

rsETH functions as a non-rebasing token, meaning the quantity of rsETH in a holder's wallet remains constant while its exchange rate against ETH gradually increases as staking rewards accumulate. This design choice simplifies integration with DeFi protocols that may struggle with rebasing tokens that change balance automatically.

The protocol delegates validator operations to professional node operators including Kiln, Allnodes, and Luganodes.

These operators maintain RAVER (Rated Effectiveness Rating) scores above 96%, according to rated.network data. On the EigenLayer side, Kelp uses Kiln and Luganodes for operator delegation, with asset composition managed across multiple EigenLayer strategy contracts.

The smart contract architecture employs a multisignature structure with role-based access controls. Changes to Kelp-deployed contracts require approval from a 6/8 external admin multisig, while operational functions like staking and claiming rewards are managed by a 2/5 manager multisig. The MINTER_ROLE is assigned exclusively to the DepositPool contract, and the BURNER_ROLE to the Withdrawal contract, creating a one-way information flow that limits attack surface.

Token Economics and Fee Structure

rsETH has no fixed maximum supply; tokens are minted when users deposit and burned upon withdrawal. The circulating supply fluctuates based on deposit and redemption activity, currently sitting around 350,000 rsETH.

The protocol charges a 3.5% fee on ETH staking rewards, which represents Kelp's primary revenue source from rsETH operations. The platform does not charge deposit fees for liquid staking tokens, a deliberate strategy to minimize friction for new users entering the restaking ecosystem.

Kelp operates within the broader KernelDAO ecosystem, which unifies three products under a single governance token: Kelp for Ethereum liquid restaking, Kernel for BNB Chain restaking infrastructure, and Gain for automated yield vaults.

The KERNEL (KERNEL) token has a total supply of 1 billion, with 55% allocated to community rewards and airdrops.

The token distribution prioritizes community participation: 20% is allocated for team and advisors with a 6-month lock-up and 24-month vesting period, 20% went to private sale investors, and 5% to ecosystem partnerships. Season 1 airdrops distributed 10% of total supply to users who earned Kelp Miles or Kernel Points through December 2024, with subsequent seasons allocating 5% each.

KERNEL utilities include governance participation, restaking for economic security, eligibility for ecosystem airdrops, and a planned insurance mechanism against slashing events. The token launched on Binance Megadrop in April 2025, attracting over 1.7 million participants in what became the largest Megadrop turnout in the exchange's history.

rsETH in Decentralized Finance

The rsETH token is available across more than 40 DeFi protocols, enabling holders to supply liquidity, borrow against their positions, and participate in yield strategies. Major integrations include Uniswap, Curve, Balancer, and various lending protocols.

A distinctive feature is Kelp's Gain Vaults, which automate yield optimization by deploying rsETH across multiple EigenLayer services.

The vaults handle the complexity of selecting which Actively Validated Services to support, rebalancing positions, and managing reward distribution. This abstraction layer makes restaking accessible to users who lack the technical expertise or time to optimize positions manually.

The protocol also introduced KEP (Kelp Earned Points) in February 2024, creating a liquid representation of otherwise illiquid EigenLayer points. While EigenLayer awards points to restakers for future airdrop eligibility, those points cannot be traded or used in DeFi. KEP tokenizes these points, allowing holders to transfer and trade their accrued rewards before any official EigenLayer token distribution.

rsETH supports integration with Pendle Finance, enabling users to separate principal and yield components for fixed-rate strategies or leveraged points exposure. The Pendle PT-rsETH position allows users to lock in a fixed yield at maturity, while YT-rsETH grants exposure to all yield and points generated until pool expiration.

Regulatory Exposure and Documented Vulnerabilities

Kelp DAO has undergone multiple security audits from SigmaPrime, Code4rena, and MixBytes. The November 2023 Code4rena audit identified five unique vulnerabilities: three rated high severity and two medium severity, across the initial rsETH smart contract system. These findings were addressed prior to mainnet deployment.

The MixBytes audit noted vulnerabilities related to the manual price update mechanism for rsETHPrice, which could enable arbitrage opportunities if stETH experiences secondary market discounts. The team proposed implementing circuit breaker mechanisms upon introduction of withdrawals to mitigate this risk.

A notable incident occurred in April-May 2025 when a bug in the fee minter contract led to excess rsETH minting.

The issue was resolved quickly with no reported user impact, and the team introduced new safeguards. Additionally, Kelp faced a UI attack due to compromised nameservers, which displayed malicious wallet activity before domain control was recovered.

The protocol maintains a bug bounty program through Immunefi, offering up to $250,000 for critical smart contract vulnerabilities. The bounty structure pays 10% of funds directly affected for critical bugs, with a minimum $100,000 reward to incentivize disclosure of severe vulnerabilities.

Structural risks extend beyond Kelp-specific concerns to the liquid restaking sector broadly. Ethereum co-founder Vitalik Buterin warned in May 2023 against "overloading" Ethereum's consensus mechanism through restaking arrangements that could introduce systemic risks. His concerns centered on scenarios where restaked assets might face slashing on third-party protocols, potentially threatening the mainnet's security.

EigenLayer's slashing functionality remains only partially implemented, with the protocol currently operating without fully realized slashing conditions. This creates uncertainty about how losses would be distributed across restakers if an Actively Validated Service experienced a catastrophic failure or security breach.

The liquid restaking sector faces comparisons to the Terra/Luna collapse, with some industry observers warning that the layered exposure could create cascade risks.

If a major AVS failed and triggered slashing across multiple liquid restaking protocols, the resulting depeg could force liquidations throughout DeFi.

Competitive Positioning in the Liquid Restaking Market

Kelp DAO occupies the second position in liquid restaking by TVL, behind Ether.fi which dominates with over $8 billion in deposits. Renzo (RENZO) holds the third position with approximately $1.1 billion, followed by Puffer Finance and Swell.

The competitive dynamics differ from traditional liquid staking where Lido achieved near-monopoly status. Liquid restaking requires selecting which Actively Validated Services to support, creating differentiation opportunities based on risk management, yield optimization, and AVS selection strategies.

Ether.fi differentiated through its Solo Staker program and subsequent credit card integration, while Renzo expanded cross-chain to eleven blockchain networks. Kelp's competitive positioning emphasizes the KernelDAO ecosystem integration, no-fee LST deposits, and the KEP points tokenization mechanism.

The liquid restaking market represents approximately 6.6% of all staked ETH as of early 2025, with the broader restaking ecosystem on EigenLayer exceeding $13 billion in TVL. Industry projections suggest the category could grow substantially as more Actively Validated Services launch and begin paying rewards to restakers.

Structural Requirements for Continued Relevance

rsETH's long-term viability depends on EigenLayer successfully launching revenue-generating AVS protocols that pay meaningful rewards to restakers. Currently, much of the restaking activity is driven by speculative farming of potential airdrops rather than actual yield from securing services.

The protocol faces a potential yield crisis if the growth of restaked assets outpaces demand from AVS operators seeking security. Too much capital chasing too few opportunities would compress returns and potentially trigger withdrawals.

Centralization concerns persist within the broader EigenLayer ecosystem, as a small number of operators control large portions of delegated stake. This concentration could create single points of failure and contradicts the decentralization ethos that underlies Ethereum's security model.

The regulatory environment remains ambiguous, though the SEC published guidance in August 2025 suggesting that non-managerial functions by liquid staking providers may avoid securities classification. Institutional adoption may accelerate if regulatory clarity continues improving.

rsETH will likely maintain relevance as long as EigenLayer remains the dominant restaking infrastructure on Ethereum. The protocol's integration depth across DeFi, established audit history, and institutional backing from Laser Digital and Binance Labs position it competitively within the liquid restaking category. However, the token's success ultimately depends on EigenLayer fulfilling its promise of creating a sustainable market for shared security services.