Karak Restaking Protocol: EigenLayer's New Competitor
The restaking sector needed a robust alternative to EigenLayer, and the Karak project answered the call, backed by powerhouse funds like Coinbase Ventures and Pantera Capital. Karak raised $48 million in its Series A round in December 2024.
As of August 2024, the total value locked (TVL) in all restaking protocols has reached $15 billion, distributed across 10 projects, with EigenLayer commanding the lead with $12.5 billion.
Restaking Protocols TVL as of August 2024. Source: defillama.com
EigenLayer stands as a pioneer in the restaking sector. It leverages Ethereum's security infrastructure to support new protocols that lack the resources to motivate validators independently. Ethereum stakers, through EigenLayer, can redistribute their ETH and/or Liquid Staking Tokens (LST), earning extra rewards for their contributions.
Although EigenLayer holds significant advantages, it does not monopolize the restaking market; other top contenders include Symbiotic and Karak. Despite their combined TVL being five times smaller than EigenLayer's, these projects are viewed with optimism by parts of the community.
The Troubled Past of Karak’s Founders
Karak was established by former Coinbase employees Rauf Ben-Har and Drew Patel. They are also associated with Risk Harbor, a project accused of embezzling $6 million intended for insuring the failed stablecoin UST by Terraform Labs.
The Terra Classic community has accused the team behind Karak of stealing 200 million USTC tokens (valued at $6.6 million at the time of the alleged theft). According to them, Risk Harbor removed these tokens from the Terra ecosystem several months after its collapse in 2022.
In response to these accusations, Rauf Ben-Har claimed that the funds were granted to them, thus Risk Harbor had the authority to manage the tokens without needing approval from the Terra Classic community.
Key Features and Differences of Karak from EigenLayer
Karak TVL. Source: defillama.com
Karak has contributed to diversifying liquidity in the restaking sector. Users who were either unable to engage or dissatisfied with EigenLayer's functionalities have transitioned to Karak. This shift particularly accelerated following the controversial airdrop of the EIGEN token.
On May 10, 2024, EigenLayer invited users to start claiming its native project token, EIGEN. Importantly, the token has not been launched yet, but users were informed about the number they would receive after the Token Generation Event (TGE). This airdrop has sparked dissatisfaction within the community for several reasons:
- The allocation of tokens is minimal, only 6% of the total supply.
- There are geographic restrictions, excluding investors from the USA and Canada.
- The TGE is scheduled unusually late, on September 30.
Distribution of TVL Across EigenLayer and Karak by Tokens. Source: defillama.com
Incorporating stablecoins such as USDE into restaking is considered an advantage by some users, but critics view this strategy as questionable. They argue that it increases the susceptibility of the DSS (Distributed Secure Service, similar to AVS in EigenLayer) to security breaches, asserting that only ETH can ensure adequate security levels.
Despite these concerns, Karak’s team argues for asset diversification within the DSS:
Our fundamental belief is it’s a DSS’s prerogative to decide what assets it wants to security from. We also believe a diversified basket of assets is a lot more secure than relying on a single asset, even if it's as liquid and big as ETH
Another distinctive aspect of Karak is its support for multiple blockchains. Unlike EigenLayer, which is exclusive to Ethereum, Karak’s restaking is available on multiple platforms including Ethereum, Arbitrum, BSC, Blast, Mantle, and K2 (Karak's L2 network for DSS testing).
Distribution of Karak’s Liquidity Across Networks. Source: defillama.com
Beyond K2, Karak provides a Software Development Kit (SDK), which is a set of tools for DSS development. This SDK enables dApp developers to effortlessly expand or create new functionalities for their applications, essentially allowing them to develop customized turnkey apps.
Karak Airdrop and Token
Beyond the rewards directly earned from restaking, users are drawn to Karak with the hope of participating in an airdrop. The project features a loyalty program called Karak XP, which allows users to earn special points that can later be converted into Karak tokens.
Karak XP points can be accumulated through various activities within the protocol and related projects. Additionally, interacting with certain projects can provide retroactive hunters with a points multiplier. For instance, staking assets on Pendle increases the rate at which Karak points are earned by 1.5 times, restaking Mantle Staked Ether (mETH) doubles the points, and eETH (a yield token from ether.fi) offers a 31x multiplier.
Karak's governance system is still under development. However, the community expects that Karak's decentralization will be implemented through a governance token. Similar to other restaking projects like EigenLayer, Renzo, and Swell Network, the governance token could be used for voting within the Karak DAO.
Despite the speculation, the project team has not made any official statements regarding a potential airdrop. Therefore, those interested in retroactive rewards within Karak will need to do further research.
Final Thoughts
Competition drives progress. It encourages projects to innovate, integrate new features, increase rewards, enhance security, and more. Moreover, a monopoly like EigenLayer could hinder the natural growth of the restaking niche, making projects like Karak essential.
Karak has been labeled the "EigenLayer killer," much like how Solana and hundreds of other L1 blockchains were once touted as "Ethereum killers." However, most of those projects have faded away, leaving only Solana, Polkadot, and Cosmos as notable survivors.
Whether Karak will join the ranks of successful innovators or promising failures—and whether it can surpass EigenLayer—remains to be seen.
