Coinbase examines the potential long-term significance of restaking for Ethereum yields, particularly if native stake issuance decreases.
Since The Merge in September 2022, when the Ethereum blockchain transitioned into a Proof-of-Stake (PoS) network, the platform’s liquid staking protocols have increased dramatically.
In recent times, however, restaking has received even more attention with the rise of liquid restaking tokens (LRTs).
Eigen Layer Emerges as the Ethereum’s Second-Largest DeFi Protocol
Due to Ethereum’s robust staking infrastructure and ample security budget, EigenLayer has ascended to the position of the second-largest DeFi protocol on the platform in terms of total value locked (TVL), which is presently $12.4 billion.
EigenLayer enables validators to acquire additional compensation by restaking their staked ETH to secure actively validated services (AVS).
The impressive expansion of EigenLayer’s TVL places it in second place, trailing only Lido, the preeminent liquid staking protocol on Ethereum.
In June 2023, EigenLayer introduced its restaking protocol to the Ethereum mainnet.
In the second quarter of 2024, AVSs are scheduled to be implemented as part of the subsequent phase of EigenLayer’s multi-phase deployment.
By securing novel Ethereum functionalities including data availability layers, rollups, bridges, oracles, and cross-chain messages, validators may be eligible to receive additional rewards through EigenLayer’s innovative “restaking” concept.
This provides validators with a new source of revenue in the form of “security-as-a-service.”
Coinbase’s report also emphasized the development of a flourishing ecosystem surrounding Liquid Restaking Tokens (LRTs), which mirrored the achievements of Liquid Staking Tokens (LSTs).
This ecosystem now has over a half-dozen protocols, each giving its iteration of liquid restaking tokens with a variety of incentives and airdrop methods.
Furthermore, around 2.1 million ETH, or 62%, of the 3 million ETH that are sealed in EigenLayer, are wrapped in secondary protocols.
Prospects for Restaking Tokens
Coinbase further highlighted the potential importance of restaking as a means to obtain ETH returns, especially if increased participation in staking activities leads to a decrease in the issuance of native staking coins.
Coinbase also noted the anticipated near-term challenges for Liquid Restaking Tokens (LRTs), given the relatively low yields on Actively Validated Services (AVS) following their introduction.
Notably, no AVS has yet been deployed on the mainnet; EigenDA, the initial AVS, is scheduled to be deployed in early Q2 2024.
EigenDA may operate as a data availability layer in a manner comparable to that of Celestia or the blob storage on Ethereum.
Based on the substantial reduction in layer-2 (L2) transaction fees achieved with the Dencun upgrade, Coinbase predicts that EigenDA will provide another pathway for economical L2 transactions, thereby enhancing the multifaceted arsenal of Ethereum.
