Ethereum-based liquid restaking protocol Eigenlayer’s total-value locked (TVL) hassurged by a staggering $1 billion in just eight hours after the protocol temporarily removed its staking cap.
On Feb. 5, EigenLayer announced that it would temporarily raise its 200,000 Ether per protocol staking cap until Feb. 9 in a bid to “invite organic demand” to the network. The protocol said this temporary removal is “paving the way to a future” where all staking caps are permanently removed.
🟦 EigenLayer Restaking Reloaded! 🟦
From NOW until Feb 9th, 12 PM PT, dive back into the world of LST restaking! All pools are fully uncapped, featuring both the existing pools and welcoming new partners @fraxfinance, @liquid_col, & @0xMantle. pic.twitter.com/yDGHiJjX3m
— EigenLayer (@eigenlayer) February 5, 2024
In the eight hours following the announcement, the protocol’s TVL surged from roughly $2.5 billion to $3.58 billion at the time of publication, as investors funneled their respective liquid staked ETH tokens into the protocol, per DefiLlama data. This outsized growth marks a staggering $1.6 billion increase last week.
EigenLayer is protocol that allows investors earn additional yield on their staked ETH tokens by restaking them to secure other networks. As of the time of publication, EigenLayer supports liquid staking tokens such as Lido DAO’s staked ETH (stETH) and Swell Stated Ether (swETH).
Lido Staked ETH currently stands as the most restaked token on EigenLayer, accounting for more than $1.2 billion worth of EigenLayer’s total TVL. Swell Staked ETH is the second largest on the protocol, accounting for a total TVL of $392 million.
Restaking works by providing investors with interest for locking up their existing liquid staking tokens, and then using the tokens to assist with validation, lending and liquidity on other blockchain networks.
While EigenLayer is widely regarded as providing a novel use case for staked ETH tokens, market commentators and developers alike have raised their concerns with the mechanics of the protocol, describing high volumes of restaking as being akin to leverage.
In May last year, Ethereum co-founder Vitalik Buterin warned that a significant increase in re-staking, as well as the overuse of data or price oracles could introduce major “systemic risks” to the Ethereum ecosystem.
EigenLayer’s testnet was launched on April 7, 2023, and the protocol’s mainnet launched two months later on June 14. Since then, the protocol’s TVL has grown a staggering 21,623%, reflecting the enthusiasm for restaking among the wider crypto market.