Coinbase analysts David Han and David Duong released a research report on Tuesday stating that the recent trend of restaking has become a “core component” of Ethereum’s future, but this new income mechanism still carries hidden risks.
The restaking ecosystem of Ethereum has recently flourished, with the total value locked (TVL) in the Ethereum restaking protocol EigenLayer reaching nearly $12 billion, making it the second-largest DeFi protocol after Lido. However, the Coinbase analysts stated in their research report that there are risks associated with Ethereum restaking and the issuance of liquidity restaking tokens (LRT).
Restaking carries hidden risks. The EigenLayer protocol for Ethereum restaking allows users to restake already staked ETH or liquidity staking tokens (LST) to ensure the security of active validation services (AVS) and receive additional rewards. The report points out that when the EigenLayer protocol was first introduced, the restaking process was supposed to be “relatively simple”. However, one feature of EigenLayer is that staking tokens in one AVS can be further restaked on other AVS:
In addition, the report suggests that restakers may turn to LRT providers that offer the highest returns, which could lead to additional risks:
Despite the risks, the Coinbase analysts believe that the EigenLayer restaking protocol seems “likely to become the cornerstone of various new services and middleware on Ethereum, allowing validators to enjoy substantial rewards in the future”. Coinbase also predicts that while the amount of ETH being restaked will continue to grow in the long term, there may be a reasonable short-term decline in the TVL of EigenLayer if the early AVS rewards are lower than expected or when the mining rewards end.