After a red-hot start to the year, EigenLayer, the protocol that pioneered Ethereum’s multibillion-dollar restaking sector, is cooling off.
Restaking is the process of using the same capital to simultaneously secure Ethereum and a variety of other protocols. The total value of crypto deposited in EigenLayer for restaking has dropped 20% since peaking at $20 billion on June 6.
Affiliated “liquid restaking” protocols — which make it easy to deposit crypto in EigenLayer — have also been hit. The value of crypto deposited in Renzo and Kelp DAO has dropped 44% and 17% over the past month, respectively. Competitors Ether.Fi and Puffer Finance have seen anaemic growth in that span.
“Restaking, whether EigenLayer, Symbiotic, Karak, etc. today is all incentivized by points,” Ian Unsworth, founder of Kairos Research, told DL News. “Right now I think we can attribute outflows to incentives being massively reduced from where they were a few months ago.”
Points are crypto-based loyalty rewards. Developers say they’re a way to measure users’ “contribution” to a protocol based on predefined metrics, but most users understand them to be a way to allocate tokens in future airdrops and juice engagement.
Rapid growth
Since its debut last year, EigenLayer has rocketed to the top of Ethereum’s decentralised finance ecosystem. As of Friday, it was still the second largest DeFi protocol, managing more than $15 billion in crypto.
Proponents have called restaking one of the most exciting developments on Ethereum, something that could make it safer, cheaper, and easier to launch new protocols.
“Anybody that has the word AVS or restaking is just getting [investor] money shoved down their throat,” Ether.Fi CEO Mike Silagadze told DL News earlier this year, using the acronym for protocols that build atop EigenLayer.
In February, venture capital firm Andreessen Horowitz invested $100 million in EigenLayer’s Seattle-based parent company, Eigen Labs.
“The implications of this are profound,” Ali Yahya, a partner at Andreessen Horowitz, wrote in a February blog post announcing the investment.
EigenLayer has the potential to unlock “100x faster innovation” of crypto-based technology, Yahya continued.
But the leading restaking project has also drawn controversy, however, with critics warning it could destabilise Ethereum.
A ‘healthy step’
EigenLayer has rolled out in stages. The profits it is expected to generate and to distribute among “restakers” will come later this year.
To attract users, EigenLayer and liquid restaking protocols have been offering users “points” when they deposit their crypto. Those points have been used to allocate token distribution in several airdrops.
Now that the airdrops have come and gone, investors are seeking greener pastures elsewhere.
“Because there are still no AVS rewards, we have to attribute outflows due to lack of current incentives,” Unsworth said.
“AVS rewards for EigenLayer aren’t far away, and without incentives, we believe we’ll see a more ‘organic’ market equilibrium be created.”
That same exodus led to the halving of the value of crypto deposited in Pendle, another related protocol.
“I’d like to be clear this is a healthy step in the process,” Unsworth said, “and we believe restaking will continue to be a massive market, and an important influence on the overall Ethereum network.”
Aleks Gilbert is DL News’ New York-based DeFi correspondent. Have a tip? You can reach him at aleks@dlnews.com.