The original text is from FourPillars

Compiled by Odaily Planet Daily Golem (@web3golem)_

Editor's note: As the meme market on the Solana chain continues to fade, many players' strategies have shifted from finding "golden dogs" to finding "gold mines." Among them, the Solana liquidity restaking protocol Fragmetric, which completed a $7 million seed round of financing in early February, has been gaining attention, with a current TVL exceeding $85 million. In this research report written by 100y, not only is the working mechanism of Fragmetric and its on-chain reward distribution mechanism detailed, but it also points out the advantages of Fragmetric over the Ethereum restaking protocol EigenLayer, leveraging Solana's excellent scalability and unique Token-2022 standard to address the issues present in the existing Ethereum restaking system.

The first chapter of the report mainly introduces the concept of restaking and the two core issues faced by the restaking ecosystem in the Ethereum ecosystem, namely the over-reliance of EigenLayer reward distribution on off-chain computation and the inability of liquidity restaking protocols to distribute rewards in real-time to LRT holders due to operational costs and complexity, leading to significant sell pressure during AVS token reward distribution. However, to save the reader's valuable attention, the first chapter has been omitted in this translation, focusing instead on introducing the Fragmetric protocol itself. Readers who are not familiar with the concept and history of restaking can refer to the original text.

Core Conclusions:

• Although the restaking ecosystem is relatively new, it has developed at an astonishing speed, becoming a core pillar of DeFi. However, the Ethereum restaking ecosystem faces challenges such as low scalability and sell pressure on AVS token rewards.

• Fragmetric is a liquidity restaking protocol in the Solana ecosystem that effectively tracks LRT holders and calculates on-chain contributions through solutions that are only possible on Solana. This approach successfully addresses issues in the Ethereum restaking ecosystem, such as the sell pressure on AVS tokens.

• Fragmetric's TVL is rapidly growing, with the Jito Tiprouter now online, and various protocols like Switchboard Oracle and Sonic's Hypergrid are expected to join soon.

Fragmetric Overview

Fragmetric is a native liquidity restaking protocol on Solana, built on Jito restaking. Users deposit SOL and Solana LST into Fragmetric and receive fragSOL, a token that can be used across various DeFi protocols. The deposited SOL and LST are restaked through Jito, enhancing network security.

Standardized Token Program

While Fragmetric operates similarly to other liquidity staking protocols by accepting SOL and LST in exchange for fragSOL, one of its unique advantages is the "standardized token program," which supports restaking across multiple LSTs.

LSTs in the Solana ecosystem (such as mSOL, bSOL, and jitoSOL) have different values, making it crucial to issue fragSOL at an equivalent exchange rate when users deposit. One method is to use oracles to adjust the exchange rate before minting. However, despite the high security and reliability of modern oracle protocols, the involvement of third-party infrastructure always introduces additional vulnerabilities to the system.

Fragmetric directly accesses on-chain staking 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 value of deposited LSTs equals the market value of fragSOL, Fragmetric maintains a fair and transparent minting process.

How Fragmetric Works

The complete user flow (including the standardized token program) is as follows:

1. Users deposit SOL and LST into the protocol;

2. Fragmetric's proprietary standardized token program calculates the standardized price based on the value and quantity of the deposited tokens to mint nSOL and fragSOL. The supply of nSOL and fragSOL remains constant;

3. fragSOL is issued to users, while nSOL is restaked through Jito and used to secure various NCNs (Node Consensus Networks);

4. If a Slasher successfully executes a penalty, they will receive nSOL as a reward and can burn it to claim the corresponding SOL and LST deposits.

Additionally, Fragmetric aims to support other SPL tokens beyond SOL-based assets, such as JTO. Unlike native staking, restaking relies on cryptoeconomic security, meaning various tokens can be used, not just native tokens. This indicates that Fragmetric can facilitate restaking of multiple asset types in the future.

Advantages of Solana Token-2022 Standard

Although Fragmetric's standardized token program has its advantages, the most significant distinction between it and other liquidity restaking protocols is its use of Solana's Token-2022 standard (specifically the Transfer Hook feature) to implement the on-chain reward distribution mechanism. This allows for transparent reward distribution without needing to sell them as SOL, ensuring users receive rewards directly and fairly while maintaining the integrity of AVS tokens.

Token-2022 is Solana's enhanced token standard that extends the functionality 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 in Token-2022 is "interest-bearing tokens," which can automatically accumulate interest on tokens.

Before Token-2022, implementing such features required custom smart contract development, leading to higher code complexity and additional auditing requirements. However, with native support on the Solana network, developers can now save time and costs while improving token security.

Additional features that developers can introduce using Token-2022 on top of the basic SPL token program include:

• Transfer Fees: Automatically charge transaction fees when transferring tokens. For example, in creator tokens, artists can automatically receive royalties when their tokens are transferred.

• Minting Closure: Allows the minting account to be closed when no longer needed. For example, after issuing a limited edition NFT series, the minting account can be closed to prevent further minting.

• Interest-Bearing Tokens: Allow interest to accumulate automatically over time, similar to Compound's cTokens.

• Non-Transferable Tokens: Create tokens that cannot be transferred after issuance. This can be used as NFTs for university degrees, ensuring they remain in the recipient's wallet.

• Permanent Delegation: Grant permanent control of specific tokens to designated accounts, allowing actions such as burning or revoking tokens. For example, in a gaming ecosystem, administrators can revoke in-game items from players who violate rules.

• Transfer Hook: Allows custom programs to automatically execute during token transfers (detailed 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, music NFTs can include details like song title, artist name, and release date.

Transfer Hook

The Transfer Hook is one of the most powerful features of Token-2022, allowing custom logic to be executed when a token transfer occurs. This feature enables developers to build advanced token mechanisms, such as:

• Verifying KYC compliance before allowing token transfers.

• Applying dynamic royalties based on transaction amounts.

• Updating metadata during token transfers, such as NFT ownership records.

The main advantage of the Transfer Hook is that it is automatically executed with the token transfer. This means that if the Transfer Hook logic fails, the token transfer will also fail. For example, in a KYC-enforced token, if the sender or receiver fails the KYC check, the transaction will automatically fail, ensuring compliance and security at the protocol level.

Fragmetric's On-Chain Reward Distribution Mechanism

Fragmetric distributes accumulated NCN/AVS rewards to users through its reward module. This system utilizes the Transfer Hook feature in Solana's Token-2022 standard, allowing the protocol to detect changes in the fragSOL balance in users' wallets and automatically calculate on-chain reward contribution information.

For example, as shown in the image above, if Alice transfers 10 $fragSOL to Bob, the Transfer Hook will execute during the transaction, automatically updating their on-chain contribution records. Alice's contribution stops increasing after the transfer, while Bob's contribution begins to accumulate upon receiving the fragSOL.

Contributions are proportional to the amount and duration of the restaked assets. When claiming NCN/AVS rewards, the system calculates each user's share based on their accumulated contributions. These rewards are stored in Fragmetric's reward pool reserve account, and users can claim them according to their proportion of total contributions relative to all users.

Suppose Fragmetric supports two AVS protocols, X and Y, providing 1 $X token and 3 $Y tokens as rewards daily.

• User A: Deposits 1 $fragSOL on Day 0, increases to 2 $fragSOL on Day 2, and 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, totaling 2 $fragSOL.

If 1 SOL * 1 DAY equals 1 contribution unit, their reward distribution at different time points is as follows:

• Rewards that B can claim on Day 4: The total NCN/AVS rewards are 4 $X and 12 $Y, with a cumulative total contribution of 7 units, while B's contribution is 1 unit, so B can claim 4/7 $X and 12/7 $Y.

• Rewards that A can claim on Days 2 and 5: By Day 2, only A holds fragSOL, so A can claim 2 $X and 6 $Y. Between Days 2 and 5, the total rewards accumulate to 3 $X and 9 $Y, with A's contribution being 5 out of 8 units, meaning A can claim 15/8 $X and 45/8 $Y.

In summary, Fragmetric utilizes Solana's unique Token-2022 standard and its Transfer Hook feature to intuitively track users' on-chain restaking contributions. This allows users to claim NCN/AVS rewards based on their recorded contributions without relying on off-chain calculations.

Additionally, compared to Ethereum, Solana's transaction fees are significantly lower, enabling users to easily claim various rewards in real-time based on their contributions. The reward distribution mechanism eliminates the need to sell NCN/AVS rewards, thereby reducing sell pressure and positively impacting the entire ecosystem.

Setting a New Standard for the Restaking Ecosystem

Fragmetric leverages Solana's high scalability and unique features to address key challenges in the Ethereum-based restaking ecosystem:

• Achieving On-Chain Contribution Calculation: In protocols like EigenLayer, reward calculations occur off-chain, requiring trusted third parties to submit results on-chain. Fragmetric eliminates this dependency by using the Transfer Hook of Token-2022, achieving real-time on-chain contribution tracking. This enhances the protocol's transparency and trustworthiness.

• Mitigating Sell Pressure on Reward Tokens: Ethereum-based liquidity restaking protocols face operational challenges that force them to sell accumulated AVS rewards for ETH before distribution. However, Fragmetric stores NCN/AVS rewards in the reward pool reserve account, allowing users to claim rewards directly based on their on-chain contributions. Due 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 an extremely attractive restaking solution. This advantage has already been recognized in the industry. For example, Switchboard Oracle has chosen Fragmetric as its exclusive LRT provider, demonstrating that Fragmetric's reward distribution model benefits the AVS ecosystem.

Currently, Fragmetric's TVL exceeds $85 million and is rapidly growing. In addition to Switchboard Oracle, other protocols like Sonic's HyperGrid are also preparing to join. As the Solana restaking ecosystem expands, will Fragmetric become the new industry standard?

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