Eigenlayer, an Ethereum layer 2 protocol that enables staked ether (ETH) to be “restaked” to supply safety for different blockchains, has seen its whole worth locked (TVL) almost double after quickly lifting a cap that was initially put in place to stop the community from changing into too centralized.
In line with information web site DeFiLlama, Eigenlayer’s TVL jumped from $2.16 billion to $3.84 billion in simply 24 hours after the protocol eliminated caps for sure forms of tokens on Monday. The surge was fueled primarily by stETH, a liquid staking token issued by Lido that accounted for $560 million of the brand new deposits.
Eigenlayer launched the caps final yr as a solution to stop any single token from dominating the community. Quite than issuing its personal tokens, the protocol depends on an open market the place validators can select which companies to assist safe.
“In a completely impartial protocol, it’s doable {that a} single token dominates the protocol and undermines decentralization,” Eigenlayer defined in a weblog publish asserting their authentic posture. “This might result in the marketplace for programmable belief being subverted by a single counterparty… which might have the ability to choose AVS winners and losers, or interact in different dangerous actions.”
The protocol resumed token restaking yesterday, together with suspending the 200 Ethereum (ETH)—or about $475,000—cap for a week-long run. Nevertheless, the crew mentioned they hope to finally take away the caps completely to “invite natural demand,” whereas introducing new limits to stop any token or participant, equivalent to an change, from controlling greater than 33% of governance.
Eigenlayer is a part of a rising development of “shared safety” protocols which might be placing Ethereum’s $34 billion in staked ETH to work securing different chains. Customers deposit staked ETH or liquid staking tokens into Eigenlayer’s sensible contracts, permitting them to earn further rewards for taking over danger. This additionally offers newer initiatives prompt financial safety with out having to bootstrap their very own networks of validators and {hardware}.
Ethereum founder Vitalik Buterin has praised the thought, however concurrently warned that some implementations might overload the bottom chain.
“We must be cautious of application-layer initiatives taking actions that danger rising the ‘scope’ of blockchain consensus to something apart from verifying the core Ethereum protocol guidelines,” he wrote final yr. “We should always… protect the chain’s minimalism, help makes use of of re-staking that don’t appear like slippery slopes to extending the position of Ethereum consensus, and assist builders discover alternate methods to realize their safety objectives.”
Proponents say, nevertheless, that Eigenlayer strikes an excellent steadiness by remaining blockchain-agnostic. The idea earned the protocol $50 million in Sequence A funding final March.
Ethereum’s transition to proof-of-stake has led to an explosion of centralized and decentralized companies for incomes yield on staked cash. With its mainnet launch slated for later this yr, the protocol is positioning itself to capitalize on the booming curiosity in staking.
Many buyers are actually utilizing platforms like Eigenlayer to “restake” tokens they’ve already locked up, compounding their rewards. However as Buterin articulated, it’s also elevating issues about unintended penalties.
For now, tens of hundreds of thousands of {dollars} proceed to circulation into Eigenlayer each day. The crew says they are going to reimpose a brief cap on Friday, Feb. 9, as they proceed to discover methods to realize “an inexpensive steadiness between the twin priorities of neutrality and decentralization.” What occurs subsequent might be as much as the protocol group.
