Original article by Amadeo Brands

原文标题：Restaking is growing like crazy… but it could crash and burn

Original source: Cointelegraph

Compiled by: Koala, Mars Finance

Users are flocking to yield farm re-staking protocols, but poor risk management and due diligence are a ticking time bomb.

Risk management is rarely included in the starter pack for crypto entrepreneurs. Especially when the market is booming and crypto entrepreneurs are working hard to acquire users and TVL, they often prioritize innovative technology and aggressive marketing over sustainability.

But a company's attitude toward risk determines whether it thrives after a bull market or becomes one of the failures the industry points to as it leads the next bear market.

Current providers in the re-staking space are at this inflection point.

Startups are seeing a massive influx of real user money. In June, the total locked value in liquidity re-staking protocols was $15 billion, up from less than $300 million a few months ago. The largest liquidity staking protocol, Ether.fi, has over $5 billion in TVL on Ethereum and Arbitrum.

This space is growing like crazy. However, only a small fraction of ETH is actually participating in it, so this is a market built on weak fundamentals. Without proper risk assessment, startups, their users, and the entire industry could collapse.

Chasing Restaking Rewards

If staking is the process by which users secure blockchains by locking or lending digital assets to earn rewards, then restaking is pledging those digital assets again.

Restaking allows already staked digital assets to be distributed to other decentralized applications in exchange for other rewards. Restaking allows a blockchain, application, or service to gather the community and capital needed to secure its system without requiring the community to gather new troves of capital - instead, they can simply use the cryptocurrency they already own.

Moving digital assets to get the best returns is called yield farming or liquidity mining. In April, the mainnet launch of EigenLayer triggered a new wave of enthusiasm for yield farming re-staking protocols. EigenLayer allows users to re-stake their ETH and ERC-20 to so-called active validation services (AVS) such as rollups, oracles, and other applications. In turn, users will receive liquidity re-staking tokens (LRT) that can be used to obtain additional yield, as well as platform points that measure the user's contribution to the network. While these points do not have value in themselves, users believe that they will be pegged to future airdrops and have begun to speculate on them.

Since then, the ecosystem of re-staking providers and services has expanded rapidly.

Liquidity re-staking providers, such as Ether.Fi, Puffer Finance, Renzo, and Mellow, remove the technical barriers to re-staking and deposit assets on behalf of users through a sleek user interface. These providers are competing fiercely to attract more liquidity to reach higher levels of total locked value (TVL).

The war for re-staking has begun. The weapon of choice: more elaborate marketing schemes offering eye-popping rewards.

Earlier this year, Ether.fi and Puffer launched campaigns offering additional rewards in the form of LRT and points to users who transferred assets through the platform, while Pendle went full speculative frenzy, announcing on its homepage “Jump on the Points Express!” and offering 100x points.

The battlefield is a cash cow for cryptocurrency users.

Time-tested riots

However, this marketing strategy — the prospect of huge token rewards or future token airdrops — is dangerous and unsustainable.

If history is any guide, these incentives are unlikely to last, and more worryingly, this realization will only take hold after huge consequences, leaving many users with a completely metaphorical amount of money in their hands.

From the ICO boom of 2018 to the first introduction of yield farming in 2020, cryptocurrency users have been madly chasing an economic game that gives their tokens a huge potential advantage. These restaking protocols allow users to squeeze more potential returns from their digital assets and squeeze more utility from the infrastructure they rely on.

The biggest concern in the re-staking market is the quality of the Active Validation Services (AVS) to which these platforms redirect user funds. In order to attract more users, re-staking providers are incentivized to be exposed to more AVS and even accept high-risk services because the rewards are high. But if the AVS violates the rules of the blockchain and is penalized, the staked user tokens may be confiscated - in cryptocurrency, this is called slashing.

At present, the curtailment mechanism is not live yet, so the industry can only speculate how penalties against one provider will affect all other providers associated with it.

At this point, the cryptocurrency industry needs to refocus on risk management as restaking providers weigh the incentives to attract new users against the effort required to conduct thorough due diligence on their AVS partners.

Another concern with all of these staking and re-staking systems stacked on top of each other is the ripple effect of hacks. If any one of these providers gets hacked, billions of dollars could evaporate not only from these services, but from the Ethereum network as a whole. Beyond the monetary impact, hacks can also damage user trust. The whole concept of re-staking to provide economic security to a wider range of applications could be called into question.

Competition creates quality

The re-staking war could hurt the industry as a whole because it tempts users to flood the market with money to buy projects with shaky fundamentals. But it doesn’t have to be this way. Competition is healthy when the competition to build innovative products is matched by the competition to protect those products from risk.

As long as companies find ways to mitigate those risks — and even work to lower the expectations of users who sometimes invest wildly in new, untested products — the industry will be stronger for that competition.

Take the growing competition between EigenLayer and Symbiotic, for example. Shortly after Symbiotic announced that it would provide Bitcoin restaking services, EigenLayer expanded its services to ERC-20 to meet the demand for more token options.

Through competition, innovative technologies will drive the industry forward. But more than that, startups will be incentivized to develop better user experiences and user interfaces for interacting with new technologies, making it easier for more users to participate. And more users build a stronger ecosystem.

The permissionless nature of cryptocurrencies allows for exciting products to be built with the help of a decentralized community and for the community to reap the rewards. A healthy restaking ecosystem will deliver real value as long as risk management is part of the equation.