Restake Finance is a liquid restaking token (LRT) protocol, serving as a front-end of EigenLayer to allow for ease of restaking. To learn more about Restake Finance, refer to this tweet here, and to understand the basis of EigenLayer and restaking, refer to this.

In this article, I bring you through the framework I used to value the FDV of Restake Finance ($RSTK).

Disclosure: Author holds $RSTK. Nothing expressed in this article is considered as financial advise. These are just the author’s thoughts and personal views.

Framework

Note: Calculations in Appendix

1. Project the growth in LST TVL over the year of 2024

2. Calculate the current LRT TVL / LST TVL ratio - 3 scenarios

   This ratio is taken as the bear case for the TVL that LRT protocols can achieve

   The neutral and bull case are taken as 5% and 10% respectively - Speculating that the proportion of staked ETH that gets restaked will increase over time

3. Calculate the potential market share that Restake Finance can have - 3 scenarios

   The current LRT market share distribution is taken as the bear case for Restake Finance’s market share - Calculated by taking mainnet and testnet figures

   The neutral and bull case are taken as 5% and 15% respectively - Speculating that Restake Finance will be able to attract a higher volume of staked ETH compared to other LRT protocols

4. Calculate Restake Finance’s revenue in each of the cases

   Revenue = 5% x EigenLayer Yield x Restake Finance’s Market Share

   Note: 5% is the revenue cut that Restake Finance takes from the yield to users

   There will be 9 distinct annualized revenue

5. Calculate weighted revenue for various Restake Finance market share scenarios

6. Calculate weighted revenue for various LRT / LST ratio scenarios

   Once this step has been completed, there will be 1 single annualized revenue

7. Find industry P/S ratio

   Using the LST market as a proxy

   Industry P/S ratio = Avg weighted (individual LST protocol P/S ratio x market share)

8. Find Restake Finance valuation

   Industry P/S ratio x Restake Finance’s annualized revenue

Conclusion

The eventual valuation I calculated for Restake Finance = $310,346,354

Current Restake Finance FDV = $220,000,000 (as of 11 January, 2024)

This projected FDV corresponds to a price of $3.24.

Hence, it can be argued that there is still growth potential for $RSTK.

It should also be noted that the valuation for Restake Finance can be even higher should we factor in additional yields, as it would increase its revenue. For example, AVS might incentivize restakers on Restake Finance to secure their protocol by offering extra yields to a particular vault (something similar to Curve wars).

In addition, the calculations were done over a 1-year period. Extrapolating it over a longer period of time will likely yield much higher annualized revenue.

To meme it, we apply a 3x multiple because of:
(a) 1st liquid restaking token to be launched
(b) Hype from the launch of AVS

And that would be a price of $9.72. NFA. I’m a Cookie that can’t count.

Appendix