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Restaking Risks Explained: Kelp DAO Depeg & Lessons for LRT Users (2026)

9 min read
LRT depeg chart concept showing rsETH discount from ETH editorial composition

The Kelp DAO rsETH depeg of 2024 was a watershed moment in the liquid restaking ecosystem — the first major demonstration that LRTs can diverge significantly from their underlying value under stress, even when nothing fundamentally wrong is happening with the protocol. Understanding what happened, why it happened, and what lessons to draw is essential for anyone using or considering restaking products.

What happened with rsETH

Illustrative rsETH/ETH discount under exit pressure: delays and pool liquidity, not only “bad code.”

The setup

Kelp DAO and rsETH:

Growth to incident:

The depeg event

Timeline:

Magnitude:

Resolution:

Why the depeg happened

Structural mechanism:

  1. rsETH is a claim on eventually-withdrawable ETH
  2. Native withdrawal requires EigenLayer → staking exit queue
  3. This process takes days to weeks
  4. If users want liquidity sooner, they must sell on secondary markets
  5. If selling pressure exceeds buying pressure, rsETH trades at discount

Contributing factors:

What didn’t happen:

This is key: The depeg happened despite the underlying protocol functioning. It was a liquidity mismatch event, not a failure event.

Lessons from the incident

Lesson 1: LRTs are liquidity-mismatched products

The structural issue:

Implication: LRT “liquidity” is conditional — it exists when buyers and sellers are balanced, breaks when they’re not. Unlike holding ETH directly, LRT liquidity is a fragile property.

For users:

Lesson 2: Withdrawal delays compound

The delay stack:

  1. Protocol-level processing (LRT to EigenLayer): Minutes to hours
  2. EigenLayer exit queue: Days
  3. Ethereum staking exit queue: Days (depending on network conditions)
  4. Total: Often 1-2 weeks, can be longer

Users didn’t internalize this: Many assumed LRT → ETH was near-instant based on secondary market trading. The native process is much slower.

Implication:

Lesson 3: Concentration risk in AVS selection

The problem: LRT protocols choose which AVSs to restake to. If users don’t understand or control that exposure:

Kelp DAO specific: Kelp DAO had exposure to various AVSs. While none of these caused the depeg directly, the complexity meant users didn’t fully understand their risk.

Implication:

Lesson 4: Secondary market liquidity is fragile

The pool dynamics:

What happened to Kelp:

Implication:

Lesson 5: DeFi integration amplifies stress

Ripple effects:

General pattern:

Implication:

Comparing LRT depeg resilience

Different LRTs have demonstrated different behaviors during stress:

ether.fi (eETH):

Renzo (ezETH):

Lido stETH (not LRT but relevant):

Simpler = more stable: The pattern: fewer layers of complexity correlate with better peg stability. Pure staking (stETH) is more stable than restaking (rsETH, ezETH). Direct staking (your own validator) is more stable than stETH.

Practical risk assessment framework

Before depositing into any LRT, evaluate:

Protocol fundamentals

Team and transparency:

Mechanism design:

AVS strategy:

Market characteristics

Liquidity:

DeFi integration:

Historical performance

Peg history:

Stress event behavior:

What to do if LRT depegs

If you hold LRT that’s trading at discount

Assess first:

Option 1: Hold and redeem natively

Option 2: Sell at discount

Option 3: Buy more at discount

Avoid common mistakes

Panic selling:

Doubling down without analysis:

Using LRTs as collateral during stress:

Trusting LRT trading price over value:

How risks are evolving

Post-Kelp improvements

LRT protocol changes:

Protocol category maturation:

Ongoing concerns

New AVS exposures:

Liquidity fragmentation:

Regulatory uncertainty:

Restaking risk hierarchy

Understanding relative risks helps decision-making:

Lowest risk: Hold ETH directly

Low risk: Direct staking (32 ETH validator)

Medium risk: Lido stETH

Higher risk: LRT (Kelp, Renzo, ether.fi, etc.)

Highest risk: Leveraged LRT positions

The Kelp DAO rsETH depeg demonstrated that liquid restaking tokens are more fragile than many users realized — even when nothing fundamentally fails, liquidity mismatches can create significant discounts that translate to real losses for users who need to exit. The broader lesson applies to all LRTs: these are complex products whose “liquidity” is conditional on market conditions that can deteriorate rapidly. For users who understand the risks, restaking remains a legitimate yield opportunity. For users expecting savings-account-like safety, the Kelp episode illustrates why that expectation was always misaligned with actual product characteristics. Match your expectations to the real risk profile, and you can use these products appropriately; assume the marketing version of “safe high yield” is accurate, and you’ll eventually be disappointed.

This article is for informational purposes only and is not financial advice. DeFi protocols and restaking arrangements carry substantial risks including depeg scenarios, smart contract failures, and potential total loss of funds. Historical performance doesn’t guarantee future results. Always do your own research.

Frequently asked questions

What happened to Kelp DAO's rsETH in 2024?

Kelp DAO’s rsETH (a liquid restaking token) traded at a 2-5% discount to the underlying ETH value for an extended period during 2024, creating significant stress for holders. The depeg was triggered by a combination of withdrawal delays from EigenLayer, liquidity issues in rsETH/ETH pools, and users attempting to exit restaking positions. The event demonstrated that LRTs can meaningfully diverge from their underlying value under stress, even when the underlying protocols are functioning normally.

Are all LRTs vulnerable to similar depegs?

Yes, structurally. All liquid restaking tokens face similar risks: EigenLayer withdrawal delays affecting redemption, liquidity constraints on secondary markets, and potential selling pressure when users want to exit. Some LRTs (ether.fi eETH, Renzo ezETH) have maintained tighter pegs than others, but none are immune. The underlying mechanism — LRT as a claim on a delayed redemption process — inherently allows for secondary market discounts during stress.

What should I do if my LRT is trading at a discount?

Key options: (1) Hold and wait for native redemption, which eventually gives you 1:1 underlying ETH, (2) Sell at the discounted price, locking in the loss vs. holding, (3) Use the discount for buying opportunities if you think the discount will close. The right choice depends on your time horizon, need for liquidity, and views on the protocol. Selling at a deep discount during peak stress is typically the worst choice — that’s when discounts are widest.

How do I assess LRT risk before depositing?

Evaluate: (1) Protocol track record and audit history, (2) Withdrawal mechanism speed and reliability, (3) Secondary market liquidity depth, (4) AVS exposure profile and concentration, (5) Team transparency and operator relationships, (6) Price history during stress events. No LRT is risk-free, but some have demonstrably better mechanics than others. Diversifying across multiple LRTs can reduce single-protocol exposure.

Is restaking still a good idea after Kelp and similar events?

The answer depends on your risk tolerance and yield expectations. Restaking yields exist because restakers accept real risks including depeg scenarios, slashing exposure, and smart contract complexity. For some yield-focused users who understand and accept these risks, restaking remains attractive. For users who expected ‘safe yield’ similar to staking, Kelp DAO-style events demonstrate the risks are higher than advertised. The key is matching your expectations to actual risks.

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