The decentralized finance (DeFi) sector is experiencing a surge with EigenLayer’s restaking protocol emerging as a key driver. Amidst this promising environment, researchers at Crypto.com highlighted both the potential and the risks associated with this innovative concept of earning rewards on Ethereum.
🔬 EigenLayer is a pioneer in restaking and seeing significant growth and ecosystem developments, while multiple liquid restaking protocols have also emerged.
Check out the 🧵 for key takeaways and link to the full report 👇 pic.twitter.com/gIM1nfnKhv
— Crypto.com Research & Insights (@cryptocom_rni) February 29, 2024
The DeFi sector is witnessing a significant resurgence with the total value locked (TVL) exceeding $157 billion as of today. This marks a remarkable recovery from the lows of 2022 and highlights growing optimism among investors. This growth is primarily fueled by liquid staking projects which allow users to earn staking rewards on their assets while retaining their flexibility to utilize them in other DeFi applications.
However a new concept called restaking is further pushing the boundaries of DeFi innovation. EigenLayer which is a pioneering protocol in this space allows users to leverage their staked ETH further by “restaking” it on other applications and potentially generating additional rewards.
Restaking allows users to put their staked ETH (including liquid staking tokens like Lido’s stETH) to work on other blockchain networks or protocols. This enable the users to earn additional rewards in the process. This essentially unlocks the potential for double rewards for users.
EigenLayer has seen rapid growth with a TVL of $8.35 billion as of February 26 and currently ranking third amongst DeFi protocols tracked by DeFi Llama. It has also witnessed a growing ecosystem of projects utilizing its technology. This includes EigenDA, AltLayer, and Lagrange. Additionally, several liquid restaking protocols like Lido and Rocket Pool have emerged allowing users to easily participate in restaking with a combined TVL of over $4 billion as of February 25, 2024.
Beyond its core functionality EigenLayer has implemented a “restaked points program” and secured a significant funding round. Prominent venture capital firm a16z recently invested $100 million in EigenLayer. Moreover, Ether.fi and Puffer currently lead the market accounting for over 70% of the total TVL in this emerging space.
The research report shed light on the exciting possibilities of restaking while also highlighting the potential risks associated with this practice. According to the report, one of the key risks of restaking is smart contract risk whereby reliance on smart contracts inherent to the protocols can introduce vulnerabilities if exploited.
