EigenLayer, an Ethereum-based liquid restaking protocol, experienced a remarkable surge in Total Value Locked (TVL), surging by $1 billion within eight hours after temporarily removing its staking cap.
Breaking Staking Caps
EigenLayer made a significant announcement on February 5, revealing its decision to lift the protocol's staking cap per user to 200,000 Ether until February 9. The motivation behind this move was to stimulate organic demand within the network while paving the way for a future where all staking caps would be permanently abolished.
In the eight hours following this announcement, EigenLayer's TVL skyrocketed from approximately $2.5 billion to a staggering $3.58 billion, as investors eagerly directed their liquid staked ETH tokens into the protocol. This impressive growth represents a substantial $1.6 billion increase in just one week.
EigenLayer is a protocol that empowers investors to earn additional yield on their staked ETH tokens by restaking them to secure other networks. Currently, EigenLayer supports liquid staking tokens like Lido DAO's staked ETH (stETH) and Swell Stated Ether (swETH).
Lido Staked ETH stands out as the most restaked token on EigenLayer, accounting for over $1.2 billion of EigenLayer's total TVL. Swell Staked ETH follows as the second largest on the protocol, contributing a total TVL of $392 million.
Restaking involves providing investors with interest for locking up their existing liquid staking tokens and subsequently utilizing those tokens for validation, lending, and liquidity on other blockchain networks.
While EigenLayer introduces a novel use case for staked ETH tokens, market observers and developers have voiced concerns regarding the protocol's mechanics, likening high volumes of restaking to leverage. Ethereum co-founder Vitalik Buterin cautioned about the potential systemic risks introduced by significant restaking and overuse of data, price, oracles in the Ethereum ecosystem.
EigenLayer's testnet was launched on April 7, 2023, followed by the protocol's mainnet debut two months later on June 14. Since then, EigenLayer's TVL has witnessed a staggering growth of 21,623%, underscoring the broader crypto market's enthusiasm for restaking.