EigenLayer, an Ethereum-based liquid restaking protocol, experienced a remarkable surge in its total-value locked (TVL) after temporarily removing its staking cap. Within just eight hours of lifting the cap, the TVL increased by a staggering $1 billion. The protocol made this move in order to attract organic demand to the network and pave the way for a future where all staking caps are permanently removed.
Following the announcement, investors rushed to funnel their liquid-staked ETH tokens into the protocol, resulting in a surge in TVL from approximately $2.5 billion to $3.58 billion. This represents a $1.6 billion increase in the span of a week. EigenLayer’s TVL has grown significantly, rising from $248 million in December to $3.58 billion as of February 5th.
EigenLayer allows investors to earn additional yield on their staked ETH tokens by using them to secure other networks. The protocol currently supports liquid staking tokens such as Lido DAO’s staked ETH (stETH) and Swell Stated Ether (swETH). Lido Staked ETH is the most restaked token on EigenLayer, accounting for over $1.2 billion of the total TVL. Swell Staked ETH is the second largest, with a total TVL of $392 million.
Restaking works by providing investors with interest for locking up their liquid staking tokens and utilizing them for validation, lending, and liquidity on other blockchain networks. While EigenLayer is seen as offering a unique use case for staked ETH tokens, concerns have been raised about the protocol’s mechanics. Some market commentators and developers have likened high volumes of restaking to leverage, highlighting potential systemic risks to the Ethereum ecosystem.
Ethereum co-founder, Vitalik Buterin, warned in May 2023 that a significant increase in restaking, along with the excessive use of data or price oracles, could pose significant risks to the Ethereum ecosystem. Despite these concerns, EigenLayer’s testnet was launched on April 7, 2023, and the protocol’s mainnet followed two months later on June 14. Since then, the TVL has grown an astounding 21,623%, showcasing the enthusiasm for restaking within the broader crypto market.
The rapid growth of EigenLayer and the increasing popularity of restaking raise questions about the potential risks and benefits of this blockchain innovation. While it offers opportunities for additional yield, it also carries inherent dangers that need to be carefully considered.