- Deposits in EigenLayer topped $1 billion Wednesday.
- The rising tide has lifted some boats in Ethereum’s liquid staking business.
- But not everyone thinks the mad rush to EigenLayer is worth celebrating.
Crypto deposited in Ethereum “restaking” protocol EigenLayer has surpassed $1 billion less than 48 hours after it opened its doors again as part of its slow-motion launch.
EigenLayer raised a cap on user deposits Monday. The subsequent rush has lifted overlooked players in the booming liquid staking business.
Swell, a liquid staking protocol that launched in April, has been the biggest beneficiary. Crypto deposited in Swell has grown more than 50% since Sunday, to $186 million, according to data from DefiLlama.
Stader, a competitor, has also grown, albeit modestly. Deposits there are up almost 5% since Sunday, and were just above $250 million Wednesday.
Both have been the beneficiaries of a mad rush to EigenLayer, one of the most hyped projects to debut on Ethereum this year.
That rush has put a spotlight on still-simmering excitement surrounding restaking, a relatively new opportunity in the fast-moving crypto economy, as well as the power of point systems, which are becoming increasingly popular in decentralised finance.
Previously, EigenLayer had allowed users to deposit one of three liquid staking tokens — Lido’s stETH, Rocket Pool’s rETH, or Coinbase’s cbETH — and paused deposits after it received tokens equivalent to almost 150,000 Ether.
In addition to raising the deposit cap to 500,000 Ether on Monday, EigenLayer began allowing users to deposit six other liquid staking tokens, including those from Swell and Stader.
The sum of crypto deposited in EigenLayer — which includes liquid staking tokens as well as 77,000 Ether “natively” restaked on the platform — topped $1 billion on Wednesday, boosted in part by a 4% jump in the price of Ether and the liquid staking tokens effectively pegged to it.
Staking is the practice of committing one’s Ether to secure the Ethereum blockchain. Participants earn a modest annual yield in return.
When EigenLayer launched in June, it became the first protocol to offer “restaking”: allowing users to commit liquid staking tokens — which represent already staked Ether — on other decentralised applications on Ethereum and other blockchains.
And when EigenLayer completes its phased rollout next year, people who have re-stake their Ether will enjoy larger annual yields than they would otherwise.
Ethereum co-founder Vitalik Buterin has warned the restaking could threaten the network’s stability. Echoing Buterin, JPMorgan analysts are wary that that restaking will lead to a “cascade of liquidations if a staked asset drops sharply in value.”
EigenLayer founder Sreeram Kannan has told DL News he understands the fear and will move cautiously.
Deposit caps have been part of the project’s better-safe-than-sorry rollout.
But it hasn’t been slow enough, according to Mike Silagadze, co-founder of liquid staking protocol Ether.Fi.
“I’m actually a very big supporter of the protocol and restaking in general,” Silagadze told DL News. But convincing people to deposit their liquid staking tokens now could lead to disappointment down the road, he said.
That’s because EigenLayer won’t have any revenue-generating activity until it launches a sister product next spring, EigenDA. Even then, it might not generate enough revenue to sate restakers’ expectation for a boosted annual yield.
“The rewards for restaking are going to be pretty minimal to start,” Silagadze said. “A risk of having too much TVL is, people are going to be, like, ‘I’m getting an extra 0.1% yield, forget this restaking crap.’ So that’s another concerning thing about all the hype — and, frankly, mania.”
EigenLayer will consider adding support for liquid staking tokens from Frax, Mantle, and Liquid Collective in “early 2024.” EigenDA is expected to launch in the first half of 2024.
Aleks Gilbert is a DeFi Correspondent based in New York. Have tips? Send him an email at aleks@dlnews.com.
