Ether.fi Proposes Allocating 5% of Protocol Revenue for ETHFI Buybacks and Staker Rewards

Decentralized finance (DeFi) protocol Ether.fi has unveiled a proposal to allocate 5% of its protocol revenue towards buying back ETHFI tokens and distributing them to stakers. This initiative, designed to enhance the utility of the native ETHFI token and further align the incentives of users with the growth of the Ether.fi ecosystem, was posted in Ether.fi’s community governance forum on December 16.

According to the proposal, the ETHFI tokens bought back by the protocol will be distributed as rewards to users who have staked ETHFI for at least one month. Ether.fi emphasized that this 5% allocation would be a starting point, with the potential for adjustments based on community feedback and the performance of the protocol over time. The decision will be made by the end of this week through a tokenholder vote.

Strengthening ETHFI’s Utility and Ecosystem Growth

The rationale behind the buyback and distribution plan is to boost the value and utility of the ETHFI token, while simultaneously aligning the interests of tokenholders with the broader success of the Ether.fi ecosystem. By allocating a portion of protocol revenue to buy back and reward ETHFI stakers, Ether.fi hopes to foster a sustainable, long-term growth trajectory for its native token and encourage broader participation in the protocol’s staking mechanisms.

Ether.fi’s community is already familiar with token buybacks, as the protocol has been using revenues to buy back tokens from ETHFI’s primary liquidity pool. However, this new proposal will offer direct rewards to stakers, potentially increasing demand for the token and enhancing its market position.

Ether.fi is a liquid restaking protocol, a concept that has gained significant traction in the DeFi space. The protocol allows users to stake their tokens with a validator (to earn staking rewards) while also enabling the liquid restaking of those assets to secure other protocols simultaneously. This innovative approach provides liquidity to stakers, offering them the opportunity to earn additional rewards without losing access to their staked tokens.

Since its launch in 2023, Ether.fi has already emerged as the fourth-largest DeFi protocol by total value locked (TVL), with nearly $10 billion in assets, according to DefiLlama. Ether.fi is part of the growing trend of restaking and liquid restaking tokens (LRTs), which represent a tradable claim on a pool of restaked assets.

With the rise of LRT protocols, Ether.fi has seen strong performance, earning nearly $60 million in cumulative income from fees and other revenue sources as of December 2023.

Competitive Landscape and Market Dynamics

Ether.fi competes with other leading liquid restaking protocols (LRTs), including EigenLayer, the largest player in the sector with approximately $18.5 billion in TVL, as well as Renzo and Kelp. Collectively, the top 5 LRT protocols currently manage around 3.38 million ETH, worth roughly $12.5 billion.

Despite the competition, Ether.fi has carved out a strong position in the market, benefiting from the growing interest in restaking and the development of liquid restaking solutions. The rise in DeFi TVL, which is approaching its 2021 all-time highs, has been largely driven by these new types of protocols.

Ether.fi’s move to allocate protocol revenue to buybacks and rewards comes amid growing pressure on DeFi protocols to provide value-accrual mechanisms for their native tokens. This trend is also being seen with other major projects in the space. For example:

Ethena, a yield-bearing stablecoin issuer, recently agreed to share a portion of its $200 million in protocol revenues with tokenholders.

Aave and Sky (formerly Maker) are also experimenting with similar mechanisms to increase the value provided to their tokenholders.

This broader trend signals a shift toward ensuring that DeFi projects not only offer utility and rewards to users but also drive tokenholder value through direct revenue-sharing models and incentive structures.

Looking Ahead: Tokenholder Vote and Potential Growth

The proposal by Ether.fi will be decided via a tokenholder vote, with the decision expected by the end of the week. If approved, the initiative could significantly impact the Ether.fi ecosystem and further fuel the growing interest in liquid restaking protocols.

With the DeFi space becoming increasingly competitive, especially in the liquid restaking sector, Ether.fi’s focus on rewarding stakers and aligning incentives through buybacks may help solidify its position in the market and attract more users looking for innovative staking and yield-generation strategies.

As Ether.fi continues to grow, the implementation of this revenue-sharing model could inspire other DeFi protocols to adopt similar strategies, creating a more robust ecosystem that balances user rewards with protocol growth.

In summary, Ether.fi’s proposal to use 5% of protocol revenue for ETHFI buybacks and rewards for stakers is a strategic move aimed at enhancing token utility, aligning incentives, and fostering growth within its ecosystem. The decision could have broader implications for the DeFi space, where other protocols are also experimenting with value-accrual models for tokenholders.