Eigen Layer holds more than $20B in reported value: Riskier than meme tokens?

Eigen Layer was launched on the Ethereum mainnet simply two months in the past. Since then, the protocol reported a gradual influx of collateral deposits, which reached $20 billion. Skeptics see the deposit frenzy as much like meme tokens.

Learn: EigenLayer on the point of a possible yield disaster

Eigen Layer nonetheless will depend on token earnings, however these are based mostly on demonstrable reserves. The supply of Eigen Layer worth is ETH, which is then used to safe new initiatives.

Eigen Layer doesn’t consolidate deposits and spreads them throughout a number of Actively Validated Companies, every with totally different guidelines. The aggressive AVS already reveals a bunch of leaders with the best liquidity.

Nonetheless, the Eigen Layer ecosystem is attracting new initiatives that promise larger rewards, potential airdrops, and extra farming alternatives. Eigen Layer and AVS usually are not inherently dangerous or unused, however they’ve change into related to a dangerous setting.

Eigen Layer bears the chance of the efficiency of the EIGEN token. The Personal Factors market can be simply beginning to present its worth. The choices for promoting your personal factors are nonetheless restricted. Solely Kelp DAO has tried to represent factors. Moreover, every AVS can reward its personal factors, which nonetheless require a market to find out their worth.

Can Eigen Layer endanger the safety of Ethereum?

The unique thought of ​​Eigen Layer was to enhance the safety of Ethereum whereas offering safety to a brand new set of initiatives. Primarily, restakers give entry to Eigen Layer, which then has the proper to slash their staked ETH within the occasion they fail to meet their sincere validator companies.

Thus far, Eigen Layer has not flagged any liquidations or losses, and the slasher sensible contract is displaying no exercise. The largest threat comes from AVS initiatives that themselves take care of dangerous DeFi, particularly high-yield agriculture.

Eigen Layer itself has a a lot decrease threat of chopping. In accordance with Eigen Layer paperwork, the foremost threat comes from protocols that difficulty Liquid Restaking Tokens. Eigen Layer itself doesn’t create leverage, however LRT issuers can achieve this.

Liquid staking protocols are meant for customers who personal some ETH, however not the 32 ETH wanted to stake instantly. Each Ethereum and Eigen Layer will quickly attain their limits for including validators and proscribing new members. This makes LRT protocols the one method to each acquire passive earnings from ETH and preserve a liquid place.

The issue is that finish patrons can open positions through a number of protocols. With that dependency, threat taking or value crashes might trigger ripple results throughout LRT issuers, in addition to AVS initiatives, Eigen Layer, and hypothetically the primary Ethereum community.

Such an occasion continues to be seen as a ‘black swan’. Related over-indebtedness occasions additionally brought about the fallout from Terra (LUNA), the place loans have been used to create new belongings and use them as safety for different loans. Within the case of Eigen Layer, there’s a hypothetical risk for the same contamination occasion.

LRT protocols struggle for dominance

Liquid replotting protocols embrace Ether.fi, Kelp DAO, Renzo, Puffer, Swell, Eigenpie, and others. Eigen Layer itself has not endorsed any of the protocols and cautioned customers to do their very own analysis earlier than getting began with them.

Additionally learn: Pendle Finance regains management: Fast motion versus unauthorized use of property

In complete, the liquid staking market cap has grown to a $67 billion market cap, even after a current correction. The preliminary frenzy of latest launches has handed, and at this stage separate protocols are jockeying for high spots.

Greed could drive customers to undertake protocols like Pendle, which additionally entice important funding from TRON founder Justin Solar.

Pendle additionally hosts new tokens, the place threat takers can present liquidity to construct decentralized buying and selling pairs. Pendle’s locked worth has additionally gone up exponentially since Could and has now grown to $6.7 billion. By comparability, Solana’s DeFi is now right down to $4.75 billion. Pendle additionally routes deposit funds to different protocols similar to Aave and Compound, doubtlessly creating a series of contamination throughout different DeFi layers and swimming pools.

Thus, the present roster of LRT issuers has displaced many of the older DeFi kinds, promising higher rewards.

Cryptopolitan reporting by Hristina Vasileva