EigenLayer, a leading restaking protocol on Ethereum, is potentially facing a yield crisis due to its rapid growth, according to industry observers.
The experts claimed that the protocol’s current Total Value Locked (TVL) expansion may be outpacing its Actively Validated Services (AVS) needs, potentially leading to a significant reduction in yields.
As the second-largest staking protocol on Ethereum after Lido, EigenLayer has seen its Total Value Locked (TVL) surge by over 16% in the last month alone, reaching a staggering $14.15 billion, according to data from DefiLlama.
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EigenLayer’s removal of limits on all liquid staking tokens (LSTs) on April 16, following its mainnet launch on April 10, has heightened these concerns. This move allows for the automatic delegation of staked Liquid Staking Tokens to node operators, who secure AVS on the EigenLayer platform and earn staking rewards in return. However, the current TVL far exceeds the amount of staked Ether required for AVS security.
Chudnov, a pseudonymous builder at 3Jane derivatives exchange, highlighted the issue in a social media post on April 22 and expressed concern that EigenLayer’s AVSs would require significantly less than 10% of its current $15 billion TVL for security. If not addressed, this imbalance could result in a significant and alarming decrease in yields, Chudnov warned.
“The problem is that none of the AVSs will come close to needing $1.5 billion in security, let alone $15 billion. The whole point of Proof-of-Stake is that the value of the stake is higher than the potential profit earned from a validator behaving dishonestly,” Chudnov explained.
To address the potential yield crisis, the developer suggested that EigenLayer could launch a series of tokens to temporarily increase security budget requirements. As a long-term solution, the developer also suggested that the platform integrate deeply into the DeFi ecosystem and enhance the utility of LSTs.
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