Coinbase has warned that Ethereum restaking, while it could be the foundation for new decentralized applications, also comes with hidden risks. In a research report, Coinbase analysts David Han and David Duong highlighted the risks associated with restaking and the issuance of liquid restaking tokens (LRTs). The Ethereum restaking protocol Eigenlayer allows users to earn extra rewards through LRTs by securing actively validated services (AVS) using staked derivative tokens. However, the analysts noted that restaking can compound risks by allocating the same funds to similar validators, potentially increasing yield but also introducing hidden risk. Additionally, the addition of LRTs may concentrate restakers into high-risk providers offering the highest yields. Despite these risks, the analysts believe that EigenLayer’s restaking protocol has the potential to become the foundation for various new services and middleware on Ethereum. They also predict that the amount of restaked ETH will continue to grow in the long term, but there might be a short-term drop in Eigenlayer’s total value locked (TVL) when point farming ends or if early AVS rewards fall below expectations. Eigenlayer currently holds $11.5 billion in TVL, making it the second-largest DeFi protocol after Ethereum liquid staking protocol Lido. The enthusiasm for restaking has sparked controversy, with Ethereum developers warning about the potential for excessive leverage. However, proponents argue that restaking provides additional rewards for those who have already staked their ETH.
Coinbase warns of potential Ethereum risks associated with Restaking