Ethereum Restaking may form the “foundation” for a variety of new decentralized applications on the blockchain. But it may also introduce new hidden risks, Coinbase said.
inreportResearch on April 2, Coinbase analysts David Han and David Duong, identified several risks in liquid restaking (LRT) tokens.
Eigenlayer, an Ethereum restaking protocol, allows users to earn extra rewards in liquid restaking tokens – when the Eigenlayer protocol first launched, Analysts explained that the restaking process should be “relatively straightforward,” but a feature of EigenLayer is that tokens staked with one AVS can be staked with another AVS again.
“Although this can increase income, But it can also increase risks,” the analyst said. This is because allocating the same funds to similar validators increases returns.
Second, increasing LRT means that restakers may be concentrated to high-risk carriers that offer the highest returns.
“As a result, LRT may be incentivized to maximize returns to gain market share. But these things may come at a higher cost of risk. (Although it is still hidden),” they added.
Analysts also warn that LRT and DAO operators will be incentivized to “retake multiple maximums to stay competitive”.
But despite the risks Analysts also said EigenLayer’s restaking protocol appears “poised to become the foundation for new services and middleware on Ethereum This, in turn, can create a meaningful source of ETH reward for future validators.”
Han and Duong also speculate that although the amount of retaken ETH will continue to grow in the long term, Eigenlayer’s TVL may reasonably decline in the short term. When point farming ends or if the initial AVS rewards are lower than expected
On March 6, Eigenlayer surpassed lending giant Aave. It has become the second largest DeFi protocol. It totals $11.5 billion in TVL. according to DefiLlama reports, second only to Lido.
refer : cointelegraph.com
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