Coinbase analysts David Han and David Duong released a research report on Tuesday stating that the recent trend of restaking will become a “core component” of Ethereum’s future, but this new income mechanism still carries hidden risks.
Summary:
Understanding “restaking” 100%: Risks and coping methods
Background:
Commentary: Is restaking a “triangle debt” or “mild inflation” for cryptocurrency products?
The Ethereum restaking ecosystem has recently flourished, and the total value locked (TVL) in the Ethereum restaking protocol EigenLayer has reached nearly $12 billion, making it the second-largest DeFi protocol after Lido. However, according to a research report released by Coinbase analysts on Tuesday, there are some risks associated with Ethereum restaking and the issuance of liquidity restaking tokens (LRT).
Restaking hides risks
The EigenLayer protocol allows users to restake already staked ETH or liquidity restaking tokens (LST) to ensure the security of Active Verification Services (AVS) and earn additional rewards.
The report points out that when the EigenLayer protocol was first introduced, the restaking process should have been “relatively simple.” However, one feature of EigenLayer is that staking tokens in one AVS can be further restaked on other AVSs.
In addition, the report believes that restakers will turn to LRT providers that offer the highest returns, which may give rise to additional risks.
Still a potential cornerstone for Ethereum
Despite the risks, the Coinbase analysts state that the EigenLayer restaking protocol seems “likely to become the cornerstone of various new services and middleware on Ethereum, allowing validators to enjoy significant rewards in the future.”
Coinbase also predicts that although the amount of ETH restaked will continue to grow in the long run, there may be a reasonable short-term decline in EigenLayer’s TVL when the staking rewards end or if early AVS rewards are lower than expected.
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