Restaking Becomes Ethereum’s Second Largest DeFi Sector

Ever for the reason that Ethereum blockchain transitioned right into a Proof-of-Stake (PoS) community after The Merge occasion in September 2022, there’s been a steep rise of the liquid staking protocols on the platform. Nonetheless, restaking is getting much more consideration in latest occasions with the rise of liquid restaking tokens (LRTs).

Eigen Layer Turns into Ethereum’s Second-Largest DeFi Protocol

EigenLayer has emerged as Ethereum’s second-largest DeFi protocol by complete worth locked (TVL), at present standing at $12.4 billion, due to Ethereum’s well-established staking infrastructure and surplus safety finances. EigenLayer facilitates validators to earn further rewards by securing actively validated providers (AVS) by restaking their staked ETH.

The exceptional development of EigenLayer’s TVL positions it because the runner-up solely to Lido, Ethereum’s main liquid staking protocol.

EigenLayer’s restaking protocol was launched on Ethereum’s mainnet in June 2023, with AVSs set to be launched within the subsequent part of its multi-phase rollout within the second quarter of 2024. This revolutionary idea of “restaking” by EigenLayer permits validators to safe new Ethereum options, comparable to information availability layers, rollups, bridges, oracles, and cross-chain messages, doubtlessly incomes further rewards. This introduces a novel revenue stream for validators within the type of “security-as-a-service”.

In its report, Coinbase additionally highlighted the emergence of a burgeoning ecosystem surrounding Liquid Restaking Tokens (LRTs), mirroring the success of Liquid Staking Tokens (LSTs). This ecosystem now boasts over half a dozen protocols, every providing its personal iteration of liquid restaking tokens, that includes various incentives and airdrop schemes. Furthermore, of the three million ETH locked in EigenLayer, roughly 2.1 million ETH, accounting for 62%, are wrapped in secondary protocols.

The Way forward for Restaking Tokens

Coinbase additionally famous the potential significance of restaking as a pathway for ETH returns, significantly if there’s a decline in native staking issuance because of elevated participation in staking actions. Nonetheless, Coinbase additionally highlighted the anticipated challenges for Liquid Restaking Tokens (LRTs) within the close to time period, as Actively Validated Companies (AVS) yields are comparatively low post-launch.

Notably, no AVS has been launched on the mainnet as of now, with EigenDA, the primary AVS anticipated to roll out in early Q2 2024. EigenDA is prone to operate as an information availability layer much like Celestia or Ethereum’s blob storage.

Contemplating the success of the Dencun upgrade in considerably decreasing layer-2 (L2) charges, Coinbase anticipates that EigenDA will supply one more avenue for cost-effective L2 transactions, contributing to Ethereum’s various toolkit.