Although it has not been long since its inception, the restaking ecosystem has grown at an incredibly fast pace, becoming a core pillar of DeFi. However, the Ethereum restaking ecosystem faces challenges such as Ethereum’s low scalability and the selling pressure of AVS token rewards.
Fragmetric is a liquid restaking protocol within the Solana ecosystem that effectively tracks LRT holders and calculates contributions on-chain through solutions that are Only Possible on Solana. This approach successfully addresses issues in the Ethereum restaking ecosystem, such as token sell pressure.
Fragmetric’s TVL is growing rapidly, and thanks to its ability to mitigate the selling pressure of AVS token rewards, Jito Tiprouter is now live and various protocols like Switchboard Oracle and Sonic’s Hypergrid are expected to onboard soon.
1.1.1 Overview of Restaking
Restaking refers to the act of reusing staked native tokens (e.g., ETH, SOL) from PoS networks like Ethereum and Solana to enhance the crypto-economic security of other protocols.
For example, users can deposit staked ETH or Liquid Staking Tokens (LSTs) into restaking protocols (e.g., EigenLayer, Symbiotic). The deposited assets are then utilized to secure various protocols (e.g., AVSs) registered within these restaking platforms. While restakers face the risk of being subject to multiple slashing conditions, they also benefit from earning rewards not only from the underlying network but also from additional protocols.
1.1.2 The Key to Restaking’s Success
Source: DefiLlama
Despite EigenLayer, the first restaking protocol, launching less than two years ago, restaking has quickly become a critical infrastructure in the DeFi ecosystem. EigenLayer’s TVL stands at $11.8B, Symbiotic’s TVL at $1.4B, and Karak’s TVL at $0.5B. Given that Lido, the largest DeFi protocol by TVL, holds $25B, it is evident that restaking has amassed substantial influence.
Several factors contributed to the rapid growth and liquidity accumulation of the restaking ecosystem:
Before the emergence of restaking, liquid staking protocols like Lido dominated DeFi in terms of liquidity deposits. Since restaking liquidity is heavily reliant on liquid staking tokens, it naturally benefits from the massive liquidity pool of LSTs.
Retail DeFi users tend to be less risk-averse relative to rewards. Considering that slashing events are infrequent, LST holders have little reason not to deposit their assets into restaking protocols.
Restaking protocols launched during a period when point programs were trending across the crypto space. These programs rewarded deposits and activity with points, which were later used for token airdrops, making them an effective tool for user acquisition. Since almost all restaking protocols adopted point programs, they successfully attracted users and TVL.
Staking and restaking are highly passive activities compared to other DeFi actions like DEX trading or lending, which require constant rebalancing, collateral management, and position adjustments. Unlike other DeFi protocols that see a sharp TVL drop after an airdrop, restaking protocols have a more sustainable TVL. A look at EigenLayer’s TVL shows that TVL remains steady even after airdrops.
1.1.3 The Rise of Liquid Restaking
The expansion of the restaking ecosystem has given rise to numerous liquid restaking protocols. These protocols tokenize restaked assets, allowing users to engage in additional DeFi activities with their restaked funds.
For users who have already accepted the additional slashing risk of restaking, leveraging these assets in DeFi presents minimal extra barriers. As a result, liquid restaking protocols have been able to build significant liquidity on top of restaking protocols. For instance, while EigenLayer’s TVL is $11.8B, major liquid restaking protocols like ether.fi and Renzo hold $6.7B and $1B, respectively—demonstrating that a considerable portion of restaked assets have been liquidized.
While restaking has become a critical infrastructure in the blockchain ecosystem, it comes with certain risks. This section examines the reward distribution risks associated with EigenLayer, one of the leading restaking protocols.
1.2.1 How EigenLayer Distributes Rewards
How does EigenLayer distribute token rewards from AVSs to operators and restakers? At first glance, the process may seem straightforward, but in reality, it involves multiple complex mechanisms.
The core smart contract responsible for reward distribution is "RewardsCoordinator", which manages the allocation of ERC20 token rewards to operators and restakers. The distribution process follows these steps:
An AVS submits a "RewardsSubmission" to the "RewardsCoordinator" contract. This submission specifies the type of ERC20 token rewards and the period during which they will be distributed. The Rewards V2 Protocol offers a more flexible approach to reward distribution.
Off-chain, the "RewardsSubmission" is used to calculate the distribution of rewards. These calculations are periodically incorporated into a Merkle Tree.
The root of this Merkle Tree, known as "DistributionRoot", is published on-chain, after which rewards can be claimed following a waiting period.
Operators and restakers can claim their accumulated rewards by submitting a Merkle proof against the "DistributionRoot".
1.2.2 Off-Chain Calculation Risks
In EigenLayer, the calculation of how much each participant receives is performed off-chain by a trusted rewards updater. Since token rewards are one of the primary incentives for restakers, conducting these calculations off-chain introduces a decentralization vulnerability.
Because the reward distribution logic is handled off-chain, any malicious modifications to the calculations would be invisible to on-chain participants. A more transparent reward distribution system would ideally ensure that these calculations take place entirely on-chain to prevent manipulation and improve trustworthiness.
1.3.1 Redistribution of Rewards to LRT Holders
Not only does EigenLayer face challenges in reward distribution, but liquid restaking protocols built on top of it—such as Ether.fi, Renzo, and Swell in the Ethereum ecosystem—also encounter similar issues.
Liquid restaking protocols receive ETH from restakers and issue LRT of equivalent value. These protocols delegate the received ETH to whitelisted validators rather than directly assigning them to operators running on EigenLayer.
Source: EigenLayer
In this setup, ETH is not directly delegated to the operators’ EigenLayer accounts but instead to separate operator accounts managed by each liquid restaking protocol. For instance, in the diagram above, Luganodes operates as an EigenLayer operator while also managing validator operations for liquid restaking protocols such as Swell, Renzo, and Kelp.
Operators registered with liquid restaking protocols participate in AVSs and receive rewards. However, unlike individual operators and restakers who can claim rewards directly, liquid restaking protocols must redistribute rewards to LRT holders—introducing operational complexity.
1.3.2 Challenges in Holder Tracking and Reward Distribution
This process introduces several issues, the first being operational costs. Given Ethereum’s high gas fees, distributing rewards directly to all LRT holders can be costly. On the other hand, if users must manually claim rewards, the gas fees are passed onto them, creating an inconvenience. Furthermore, tracking all LRT holders and computing their rewards on-chain generates significant operational expenses.
Source: EigenLayer
The second issue is reward diversity. Even within the same liquid restaking protocol, different operators participate in different AVSs, as shown in the diagram. This means operators earn different types of rewards, making direct distribution to LRT holders operationally complex.
1.3.3 Token Sell Pressure in the AVS Ecosystem
Due to these challenges, most Ethereum-based liquid restaking protocols do not distribute AVS token rewards directly to LRT holders. Instead, they increase the exchange rate of LRT to ETH over time, effectively accumulating value for LRT holders.
However, increasing the exchange rate requires selling AVS rewards for ETH, which creates sell pressure on AVS governance tokens and negatively impacts the AVS ecosystem. Recognizing this issue, Ethereum-based LRT protocols have started exploring alternative solutions—one notable example being King Protocol.
King Protocol consolidates all AVS rewards received by liquid restaking protocols into a single vault. LRT holders then claim rewards using KING tokens, which represent their share in the vault. This approach offers several advantages:
Users do not need to claim multiple AVS tokens individually.
There is no need to sell AVS rewards for ETH, reducing sell pressure on AVS tokens.
Several liquid restaking protocols, including Ether.fi, Kelp, Nucleus, EigenPie, and Swell, have adopted King Protocol.
However, King Protocol introduces new challenges:
Smart contract and price peg risks – Since KING token represents multiple AVS rewards, it must maintain a stable peg to their combined value. However, it is also subject to market demand and supply fluctuations, making it vulnerable to price manipulation and smart contract risks.
Limited flexibility in AVS token utilization – Users cannot selectively claim AVS rewards. For example, if KING token represents rewards from AVS A, B, and C, but a user only wants to sell C or use A for governance, they lose the ability to make these individual choices.
Thus, while King Protocol effectively addresses AVS token sell pressure, it compromises governance and protocol utility aspects, adding additional complexities to the reward distribution model.
Source: Fragmetric
The issues observed in the Ethereum restaking ecosystem stem from Ethereum's limited scalability, which complicates reward calculation and distribution, and the forced selling of AVS reward tokens by liquid restaking protocols for efficiency. King Protocol has addressed these problems to some extent, but it introduces new challenges, such as requiring an intermediary $KING token and restricting users' ability to selectively sell AVS rewards.
Fragmetric leverages Solana's superior scalability and the unique Token-2022 standard to solve these existing restaking issues while introducing a new standard for reward distribution.
Fragmetric is a native liquid restaking protocol on Solana, built on Jito restaking. Users deposit SOL and Solana LSTs into Fragmetric and receive fragSOL, which can be utilized in various DeFi protocols. The deposited SOL and LSTs are restaked through Jito, contributing to network security.
2.1.1 Normalized Token Program
While Fragmetric operates similarly to other liquid restaking protocols by accepting SOL and LSTs in exchange for fragSOL, one of its unique advantages is the "Normalized Token Program", which supports restaking across multiple LSTs.
LSTs in the Solana ecosystem—such as mSOL, bSOL, and jitoSOL—hold different values, making it essential to issue fragSOL at an equivalent rate when users deposit them. One approach is using oracles to adjust the exchange rates before minting. However, despite the high security and reliability of modern oracle protocols, their involvement introduces an additional point of vulnerability as a third-party infrastructure.
Fragmetric directly accesses on-chain stake pool data, allowing it to accurately assess the value of SOL-based LSTs and calculate the correct fragSOL issuance rate. By ensuring that the total deposited LST value equals fragSOL's market capitalization, Fragmetric maintains a fair and transparent minting process.
2.1.2 How Fragmetric Works
The full user flow, including the Normalized Token Program, is as follows:
Users deposit SOL and LSTs into the protocol.
Fragmetric's proprietary Normalized Token Program calculates a standardized price based on the deposited tokens' value and quantity to mint nSOL and fragSOL. The supply of nSOL and fragSOL remains identical.
fragSOL is issued to users, while nSOL is restaked through Jito and used to secure various NCNs (Node Consensus Networks).
If a Slasher successfully executes a slashing, they receive nSOL as a reward and can burn it to claim the corresponding SOL and LST deposits.
Additionally, Fragmetric is designed to support other SPL tokens, such as JTO, beyond SOL-based assets. Unlike native staking, restaking relies on crypto-economic security, meaning that various tokens, not just native ones, can be utilized. This suggests that Fragmetric could facilitate restaking of multiple asset types in the future.
Despite these strengths, the most crucial differentiator between Fragmetric and other liquid restaking protocols lies in its use of Solana's Token-2022 standard—specifically, the Transfer Hook feature—to implement an on-chain reward distribution mechanism.
This enables transparent distribution of rewards without the need to sell them for SOL, ensuring that users receive their rewards directly and fairly while preserving the integrity of AVS tokens.
2.2.1 Token-2022
Token-2022 is an enhanced token standard for Solana, expanding the capabilities of the original SPL token program. It allows developers to design tokens with greater flexibility and implement additional features more easily. One notable feature added to Token-2022 is "Interest-bearing Tokens," which enables the automatic accumulation of interest on tokens.
Before Token-2022, implementing such functionalities required custom smart contract development, leading to higher code complexity and additional audit requirements. However, with native support on the Solana network, developers save time and costs while improving token security.
The additional functionalities developers can introduce using Token-2022, building on the basic SPL token program, include:
Transfer Fees: Automatically applies transaction fees when transferring tokens. For example, in creator tokens, an artist could receive automatic royalties whenever their token is transferred.
Closing Mint: Allows mint accounts to be closed once they are no longer needed. For instance, after issuing a limited-edition NFT collection, the mint account can be closed to prevent further minting.
Interest-bearing Tokens: Enables automatic interest accrual over time, similar to Compound’s cTokens.
Non-transferable Tokens: Creates tokens that cannot be transferred after issuance. This could be used for university degree certificates as NFTs, ensuring they remain in the recipient's wallet.
Permanent Delegates: Grants permanent control over specific tokens to designated accounts, allowing actions such as burning or revoking tokens. For example, in a game ecosystem, administrators could revoke in-game items from players who violate the rules.
Transfer Hook: Allows a custom program to execute automatically during token transfers (explained in detail below).
Metadata Pointer: Provides a pointer to an external metadata account, allowing for more dynamic metadata management.
Metadata Storage: Enables tokens to store additional information such as name, symbol, and logo. For example, a music NFT could include details like song title, artist name, and release date.
2.2.2 Transfer Hook
Transfer Hook is one of the most powerful features of Token-2022, enabling the execution of custom logic whenever a token transfer occurs. This functionality allows developers to build advanced token mechanics, such as:
Verifying KYC compliance before allowing token transfers.
Applying dynamic royalties based on the transaction amount.
Updating metadata upon token transfer, such as NFT ownership records.
The key advantage of Transfer Hook is that it is executed atomically with the token transfer. This means that if the Transfer Hook logic fails, the token transfer is also reverted.
For example, in a KYC-enforced token, if either the sender or receiver fails the KYC check, the transaction automatically fails, ensuring compliance and security at the protocol level.
Fragmetric distributes accumulated NCN/AVS rewards to users through its Reward Module. This system leverages Solana’s Token-2022 Transfer Hook feature, allowing the protocol to detect changes in fragSOL balances in users' wallets and automatically calculate reward contribution info on-chain.
For example, as shown in the diagram, if Alice transfers 10 $fragSOL to Bob, the Transfer Hook executes during the transaction, automatically updating their on-chain contribution records.
Alice’s contribution stops increasing after the transfer.
Bob’s contribution begins accumulating after receiving fragSOL.
Contribution increases proportionally to the amount of restaked assets and time. When claiming NCN/AVS rewards, the system calculates each user’s share based on their accumulated contribution. These rewards are stored in Fragmetric’s Reward Pool Reserve Account, and users can claim them in proportion to their total contribution relative to all users.
Assume Fragmetric supports two AVS protocols, X and Y, which provide 1 $X token and 3 $Y tokens per day as rewards.
User A: Deposits 1 $fragSOL on Day 0, increases it to 2 $fragSOL on Day 2, then transfers 1 $fragSOL to User B on Day 4.
User B: Starts holding 1 $fragSOL on Day 3 and receives an additional 1 $fragSOL from A on Day 4, making it 2 $fragSOL in total.
If 1 SOL * 1 DAY equals 1 contribution unit, their reward distribution at different points is as follows:
B’s claimable rewards on Day 4:
Total NCN/AVS rewards: 4 $X and 12 $Y.
Total accumulated contribution: 7 units.
B’s contribution: 1 unit.
B can claim: 4/7 $X and 12/7 $Y.
A’s claimable rewards when claiming on Day 2 and again on Day 5:
By Day 2, only A holds fragSOL, so A can claim 2 $X and 6 $Y.
Between Day 2 and Day 5, total rewards accumulate to 3 $X and 9 $Y.
A’s contribution: 5 out of 8 units.
A can claim: 15/8 $X and 45/8 $Y.
In summary, Fragmetric leverages Solana’s unique Token-2022 standard and its Transfer Hook feature to intuitively track users’ restaking contributions on-chain. This allows users to later claim NCN/AVS rewards based on their recorded contributions without relying on off-chain calculations.
Additionally, Solana’s significantly lower transaction fees compared to Ethereum enable users to easily claim various rewards in real-time based on their contributions. Since the reward distribution mechanism eliminates the need to sell NCN/AVS rewards, it reduces selling pressure and positively impacts the overall ecosystem.
Fragmetric leverages Solana’s high scalability and unique features to address key challenges in the Ethereum-based restaking ecosystem:
On-Chain Contribution Calculation – In protocols like EigenLayer, reward calculations occur off-chain, requiring a trusted third party to submit results on-chain. Fragmetric eliminates this reliance by utilizing Token-2022’s Transfer Hook, enabling real-time, on-chain contribution tracking. This enhances transparency and trust in the protocol.
Eliminating Reward Token Sell Pressure – Ethereum-based liquid restaking protocols face operational challenges, forcing them to sell accumulated AVS rewards for ETH before distributing them. Fragmetric, however, stores NCN/AVS rewards in the Reward Pool Reserve Account, allowing users to claim rewards directly based on their on-chain contributions. Thanks to Solana’s high scalability and low operational costs, there is no need to sell AVS rewards for SOL, ensuring a healthier ecosystem without unnecessary sell pressure.
For NCN/AVS protocols, Fragmetric’s transparent on-chain reward distribution and elimination of forced selling make it a highly attractive restaking solution. This advantage has already gained industry recognition.
For instance, Switchboard Oracle has selected Fragmetric as its exclusive LRT provider, proving that Fragmetric’s reward distribution model benefits the AVS ecosystem.
Currently, Fragmetric’s TVL stands at $73M and is rapidly growing. Beyond Switchboard Oracle, additional protocols like Sonic’s HyperGrid are preparing to onboard. As the Solana restaking ecosystem expands, can Fragmetric establish itself as the new industry standard?
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