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Is EigenLayer's Rapid Expansion Leading to a Yield Crunch?

Key Takeaways

  • EigenLayer, the largest Ethereum-based restaking protocol with over $15 billion TVL, is facing potential yield issues due to its rapid growth;
  • Security demands for EigenLayer's services are below 10% of its TVL, causing concerns about the sustainability of investor yields;
  • Proposed solutions include launching new tokens for immediate needs and integrating more deeply with the DeFi ecosystem.
Is EigenLayer's Rapid Expansion Leading to a Yield Crunch?

EigenLayer has emerged as the largest Ethereum-based restaking protocol, boasting over $15 billion in total value locked (TVL).

However, recent assessments suggest that its quick growth might steer it toward a yield crisis.

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Just six days after its mainnet launch on April 10, EigenLayer removed limits on all liquid staking tokens (LSTs), as announced on X. Users can stake their LSTs, which are then delegated to a node operator that secures Actively Validated Services (AVS) on EigenLayer, returning a portion of the staking rewards back to users.

Yet, issues arise with AVS's current security demands, which are much lower than the staked funds available.

According to Chudnov from the 3Jane crypto-native derivatives protocol, AVS will need less than 10% of the $15 billion TVL, which could lead to a significant drop in yields.

The problem is that none of the AVSs will come close to needing $1.5B in security let alone $15B.

To tackle this, Chudnov suggests short-term solutions like introducing new tokens to increase security funds. A better long-term solution could be for EigenLayer to integrate more with the decentralized finance (DeFi) sector.

As EigenLayer faces challenges from its expansion and lower-than-needed security demands for its services, it must explore both immediate and long-term strategies to stabilize and enhance yields.

In other news, EigenLayer's AVS Puffer has recently raised $18 million in a Series A funding round.

Aaron S., Editor-In-Chief
Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.
With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.
Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.
Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.

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