No Cap: Buzzy Eigenlayer Blows Past $3 Billion Total Value Locked

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) practically double after briefly lifting a cap that was initially put in place to forestall the community from changing into too centralized.

In line with knowledge 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 sorts 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 12 months as a method to forestall any single token from dominating the community. Reasonably than issuing its personal tokens, the protocol depends on an open market the place validators can select which providers to assist safe.

“In a completely impartial protocol, it’s potential {that a} single token dominates the protocol and undermines decentralization,” Eigenlayer defined in a weblog publish asserting their unique posture. “This might result in the marketplace for programmable belief being subverted by a single counterparty… which might have the facility to choose AVS winners and losers, or have interaction 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. Nonetheless, the crew stated they hope to ultimately take away the caps completely to “invite natural demand,” whereas introducing new limits to forestall any token or participant, comparable to an change, from controlling greater than 33% of governance.

Eigenlayer is a part of a rising pattern 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 good contracts, permitting them to earn additional rewards for taking over threat. This additionally provides newer initiatives instantaneous 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 threat growing the ‘scope’ of blockchain consensus to something apart from verifying the core Ethereum protocol guidelines,” he wrote final 12 months. “We must always… protect the chain’s minimalism, assist makes use of of re-staking that don’t appear to be slippery slopes to extending the position of Ethereum consensus, and assist builders discover alternate methods to attain their safety targets.”

Proponents say, nevertheless, that Eigenlayer strikes a superb 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 providers for incomes yield on staked cash. With its mainnet launch slated for later this 12 months, the protocol is positioning itself to capitalize on the booming curiosity in staking.

Many traders are actually utilizing platforms like Eigenlayer to “restake” tokens they’ve already locked up, compounding their rewards. However as Buterin articulated, additionally it is 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’ll reimpose a brief cap on Friday, Feb. 9, as they proceed to discover methods to attain “an affordable steadiness between the twin priorities of neutrality and decentralization.” What occurs subsequent will probably be as much as the protocol neighborhood.