Overview
Swell is an Ethereum liquid staking protocol that issues swETH — a liquid staking token representing staked ETH. Users deposit ETH, Swell delegates to a curated set of professional node operators, and depositors receive swETH that accrues staking rewards. swETH can be used across DeFi while the underlying ETH earns staking yield.
Swell expanded into liquid restaking with rswETH — a token representing ETH restaked through EigenLayer. rswETH combines ETH staking yield with EigenLayer restaking rewards, providing higher potential yield in exchange for additional smart contract and slashing risk.
The most ambitious expansion is Swell L2 — a rollup secured by EigenLayer restaking rather than traditional Ethereum L1 settlement. Swell L2 aims to create a DeFi-optimized chain where restaked ETH serves as the security backbone, aligning with the restaking thesis.
Swell gained significant TVL during the 2024 points farming era, with "Pearls" (Swell's loyalty points) and EigenLayer points creating double incentives for depositors. TVL reached multiple billions at peak. The SWELL token launched in late 2024.
Smart Contracts
swETH Architecture
The swETH contracts manage ETH deposits, operator delegation, and LST minting. The withdrawal mechanism allows swETH holders to redeem for ETH, subject to the Ethereum staking exit queue. The contracts follow established patterns from the liquid staking space, with a custody contract holding staked ETH and the swETH token tracking ownership.
rswETH Architecture
rswETH adds the EigenLayer restaking layer — deposited ETH is staked on Ethereum and simultaneously restaked on EigenLayer through selected operators and AVSs. The contracts manage the additional complexity of EigenLayer delegation, AVS selection, and the layered reward/risk structure.
Code Quality
Contracts have been audited by Sigma Prime and other security firms. The codebase handles increasing complexity as Swell expands from simple liquid staking to restaking and L2 infrastructure. Each product addition (swETH, rswETH, Swell L2) introduces new contract surface area.
Security
LST Security
swETH security depends on the staking contracts, operator management, and the Ethereum staking mechanism. The operator set is curated (professional node operators with track records), reducing but not eliminating slashing risk. swETH has maintained its peg well, without significant depeg events.
Restaking Risk
rswETH inherits all swETH risks plus EigenLayer-specific risks: AVS slashing, EigenLayer smart contract risk, and operator misbehavior across restaking commitments. The layered risk structure means rswETH carries materially more risk than swETH.
L2 Security
Swell L2 introduces rollup-specific security considerations — bridge security, sequencer centralization, and the novel restaking-based security model. The L2 is early-stage, and the restaking-secured rollup concept is largely unproven.
Audit Coverage
Multiple audits cover the core swETH and rswETH contracts. The L2 infrastructure is newer and requires additional audit coverage as it matures.
Decentralization
Operator Set
Swell delegates to a curated set of professional node operators. The selection is managed by the Swell team, with plans for governance involvement. The operator set provides geographic and organizational diversity but is ultimately centrally curated.
Governance
SWELL token governance covers protocol parameters, operator selection, treasury management, and L2 governance. Governance is in early stages, with the founding team maintaining significant influence over protocol direction.
Sequencer Centralization
Swell L2 initially operates with a centralized sequencer, typical for rollup launches. Decentralization of the sequencer is planned but not yet implemented.
Adoption
TVL Growth
Swell achieved significant TVL — multiple billions across swETH and rswETH at peak. Growth was driven heavily by points farming (Pearls + EigenLayer points). Post-airdrop TVL has moderated as some depositors withdrew after receiving SWELL tokens.
DeFi Integration
swETH and rswETH are integrated across DeFi — accepted as collateral on lending platforms (Aave, Morpho), tradeable on DEXs, and composable with yield protocols (Pendle). DeFi integration depth is a strength.
Swell L2
Swell L2 adoption is early-stage. The chain launched with initial liquidity incentives, attracting DeFi protocols and users. Long-term L2 adoption depends on the chain achieving sufficient activity to sustain validator (restaker) interest.
Tokenomics
SWELL Token
SWELL is the governance token distributed through an airdrop to Pearls holders and early participants. The token provides governance rights over the protocol and L2. Vesting schedules apply to team and investor allocations.
Revenue Sources
Revenue comes from staking commissions (percentage of staking rewards) and L2 sequencer revenue. The staking commission provides baseline revenue, while L2 revenue is growth-dependent.
Post-Airdrop Dynamics
The airdrop created sell pressure typical of token launch events. The transition from points-driven participation to genuine protocol governance is a key challenge for SWELL value stability.
Risk Factors
- Points-driven TVL: Significant TVL came from points farming; organic retention post-airdrop is uncertain
- Restaking layered risk: rswETH carries multiple layers of smart contract and slashing risk
- Competition: Lido, Rocket Pool, Renzo, Puffer, and Kelp compete in liquid staking/restaking
- L2 risk: The restaking-secured L2 is a novel and unproven concept
- Operator centralization: Curated operator set limits decentralization
- Token sell pressure: Post-airdrop dynamics create sell pressure on SWELL
- Market saturation: The LRT market may not support many competing protocols long-term
Conclusion
Swell has built an ambitious multi-product protocol spanning liquid staking, restaking, and its own L2. The TVL achievement is impressive, the DeFi integrations are deep, and the technical execution across multiple products demonstrates strong engineering capability.
The 5.4 score reflects the tension between ambition and sustainability. Swell's TVL was significantly points-driven, and post-airdrop retention is the key test. The multi-product strategy (LST + LRT + L2) is ambitious but spreads focus across multiple competitive fronts. Each product faces strong competition from dedicated protocols. Swell needs to demonstrate that its breadth of offerings creates synergies rather than dilution of focus.