Overview
Kelp DAO launched in 2023 as a liquid restaking protocol built on top of EigenLayer. The protocol accepts ETH and liquid staking tokens (stETH, ETHx, sfrxETH) and restakes them into EigenLayer, issuing rsETH — a liquid restaking token (LRT) that represents the user's restaked position. rsETH is fungible and can be used in DeFi (trading, collateral, yield farming) while the underlying ETH remains restaked on EigenLayer, earning both Ethereum staking rewards and EigenLayer restaking rewards.
The restaking narrative was one of 2024's dominant DeFi themes, driven by EigenLayer's launch and the promise of "shared security" — where staked ETH can simultaneously secure Ethereum and additional services (AVSs — Actively Validated Services). Kelp DAO, along with competitors like Renzo (ezETH), Puffer (pufETH), and EtherFi (eETH), competed aggressively for deposits during the EigenLayer points era.
Kelp DAO is developed by the Stader Labs team, which operates ETHx (a liquid staking token) and staking products across multiple chains. The Stader connection provides operational experience and technical infrastructure.
Smart Contracts
LRT Architecture
Kelp's architecture accepts deposit tokens (ETH, stETH, ETHx), deposits them into EigenLayer through the protocol's strategy contracts, and mints rsETH representing the aggregate restaked position. The protocol manages operator delegation (choosing which EigenLayer operators receive the restaked ETH) through governance and automated strategies.
EigenLayer Integration
Kelp's contracts interact with EigenLayer's core contracts for deposits, delegation, and withdrawal. The protocol's security is layered — Kelp's own contracts sit on top of EigenLayer's contracts, which sit on top of Ethereum's staking contracts. Each layer adds functionality and risk.
Code Quality
The contracts are open source and follow standard patterns for LRT protocols. The Stader Labs team's experience with ETHx staking contracts provides a foundation, though LRT-specific logic (multi-strategy restaking, operator management) is relatively new.
Security
Audit History
Kelp has been audited by SigmaPrime, Code4rena, and other firms. The EigenLayer integration introduces dependencies that extend the security surface beyond Kelp's own contracts — a vulnerability in EigenLayer's core contracts would affect all LRT protocols including Kelp.
Restaking Risk
The fundamental security consideration for rsETH is slashing risk. Restaked ETH can be slashed by EigenLayer AVSs for operator misbehavior. If an operator that Kelp delegates to gets slashed, rsETH holders share the loss. This is a novel risk category that does not exist in standard liquid staking.
Operator Selection
Kelp's operator selection is critical for security. The protocol delegates to multiple operators to diversify slashing risk. Operator selection criteria include track record, technical capability, and diversification across AVSs. However, the operator ecosystem is young and track records are short.
Track Record
Kelp has operated without a major exploit since launch. However, the full restaking risk (AVS slashing, operator penalties) has not been fully stress-tested, as EigenLayer's AVS ecosystem is still maturing. The absence of slashing events so far is encouraging but not definitive.
Decentralization
Operator Delegation
rsETH is delegated across multiple EigenLayer operators, providing some decentralization of restaking risk. However, the operator selection is governance-controlled, and the operator set for most LRTs is relatively concentrated among well-known node operators.
Governance
Kelp DAO governance controls operator selection, strategy parameters, and protocol upgrades. The governance structure is relatively centralized during the early growth phase, with the Stader Labs team maintaining significant influence.
LRT Concentration Risk
The liquid restaking market is concentrated among a few protocols (EtherFi, Renzo, Kelp, Puffer). This concentration means a significant portion of EigenLayer's restaked ETH is controlled by a small number of LRT protocol governance structures, creating systemic risk for the restaking ecosystem.
Adoption
TVL & rsETH Supply
rsETH has attracted significant deposits, with TVL typically in the $500M-$2B range depending on market conditions and incentive cycles. Growth was particularly strong during the EigenLayer points era, when users deposited aggressively to farm potential airdrops.
Post-Points Sustainability
A key question for all LRT protocols is adoption sustainability after the points farming incentive diminishes. Organic demand for restaking (from actual AVS rewards rather than speculative points) is still developing. Some TVL outflows have occurred as the points narrative faded.
DeFi Integration
rsETH is integrated into major DeFi protocols — accepted as collateral on lending platforms (Aave, Morpho), available in DEX pools, and supported by yield optimizers. This DeFi composability is essential for rsETH's utility beyond simple restaking.
Tokenomics
Token Status
Kelp DAO's governance token (KEP) has been announced but full tokenomics details and distribution are still developing. The Stader connection means SD (Stader token) holders may have some relationship to Kelp governance, though the exact structure varies.
Revenue Model
Kelp earns a management fee on restaking rewards (both Ethereum staking yield and EigenLayer AVS rewards). Revenue scales with TVL and the maturation of EigenLayer's AVS reward system. As AVS rewards are still early, revenue from restaking-specific rewards is currently limited.
Value Proposition
The token's value proposition depends on the maturation of the restaking economy — when AVSs pay meaningful rewards, the fee stream to Kelp (and its token holders) could be significant. This remains prospective rather than proven.
Risk Factors
- EigenLayer dependency: Kelp's entire value proposition depends on EigenLayer's success. If EigenLayer fails to attract AVSs, restaking rewards will be minimal and LRT demand will evaporate.
- Slashing risk: Restaked ETH faces slashing from both Ethereum consensus and EigenLayer AVSs. A significant slashing event would directly impact rsETH value.
- Points-driven adoption: Much of Kelp's TVL growth was driven by EigenLayer points farming. Sustainable adoption requires organic restaking demand that is not yet proven.
- LRT competition: Multiple well-funded LRT protocols (EtherFi, Renzo, Puffer) compete for the same deposits, commoditizing the offering.
- Operator risk: Poor operator selection or concentrated delegation could expose rsETH to outsized slashing risk from a single operator failure.
- Smart contract layering: rsETH involves multiple contract layers (Kelp → EigenLayer → Ethereum staking), and each layer's bugs could cascade.
Conclusion
Kelp DAO provides a well-executed implementation of the liquid restaking thesis — rsETH simplifies EigenLayer participation into a single fungible token that works across DeFi. The Stader Labs team brings operational experience, and rsETH has achieved meaningful adoption and DeFi integration.
The 5.6 score reflects the fundamental uncertainty of the restaking thesis. Kelp is building on a foundation (EigenLayer) that is itself still proving out. The protocol executes competently within this context, but scores are constrained by dependency on an unproven ecosystem, short track record, points-driven adoption, and competitive pressure from multiple similar protocols. If restaking becomes a foundational DeFi primitive, Kelp is well-positioned. If restaking disappoints, all LRT protocols face downside.