A recent report by Coinbase Research revealed that restaking has emerged as the second largest sector in decentralized finance (DeFi) on Ethereum.
The study highlights EigenLayer’s restaking protocol as a key component of new services and middleware on the Ethereum network, with the potential to provide significant ETH rewards to validators in the future.
EigenLayer’s Restaking Protocol
Ethereum's proof-of-stake (PoS) consensus mechanism is the largest economic security fund in the crypto space, with approximately $112 billion in funds. Traditionally, validators securing the network earned base rewards in locked-up ETH, but with the introduction of Liquid Staking Tokens (LST), participants can now trade or leverage staked assets. This paved the way for me to join DeFi.
Launched on Ethereum mainnet in June 2023, EigenLayer's restaking protocol has quickly grown to become the second largest DeFi protocol in the ecosystem in Total Value Locked (TVL), currently reaching $12.4 billion. I am.
The protocol allows validators to secure actively verified services (AVS) by re-staking their staked ETH and to earn additional revenue by introducing a new revenue stream known as “security as a service.” You can earn rewards.
As AigenLayer prepares to launch its first AVS, EigenDA, in early Q2 2024, the Ethereum community is excited about its potential benefits to the network. EigenDA's role as a data availability layer can impact Layer 2 (L2) transactions, providing a modular solution to reduce charges and increase efficiency.
The report predicts initial revenue from EigenDA by comparing it to Ethereum's blob storage costs. Leading Layer 2 solutions currently spend around 10 ETH on BLOB transactions every day. If EigenDA experiences similar usage levels, we would expect an annual restaking reward of approximately 3.5,000 ETH, representing approximately 0.1% of additional revenue.
risk and complexity
While the introduction of AVS can strengthen the Ethereum ecosystem, it also comes with challenges. Each AVS sets its own slash and claim conditions, so conflicts can occur when multiple AVS are involved. EigenLayer's “pooled security” model further complicates matters, allowing AVS to customize security with “attributed security,” creating a complex technical landscape for carriers.
The introduction of Liquid Re-staking Tokens (LRTs) removes much of this complexity from token holders, which could potentially lead to hidden risks. LRT providers may prioritize yield maximization to gain market share, potentially increasing their risk profile. LRT may also create downward pressure on non-ETH AVS rewards when payments are made in ETH, limiting the generation of value through re-staking.
LRTs also involve valuation risk, and their potential value may diverge during periods of withdrawal of large stakes. Appropriately assessing the value of LRT collateral is important as changes in LRT holdings and AVS returns can impact the risk profile. In extreme scenarios, a failure of the re-staking mechanism could threaten Ethereum's consensus protocol.
