To prevent this, Eigenlayer, an Ethereum Layer 2 protocol that allows you to “re-stake” staked Ether (ETH) to provide security to other blockchains, temporarily lifts the initially set limit and then sets the TVL (total fixed value) has almost doubled. Prevents networks from becoming too centralized.
According to data site DeFiLlama, Eigenlayer’s TVL surged from $2.16 billion to $3.84 billion in just 24 hours after the protocol removed limits on certain types of tokens on Monday. This surge was primarily fueled by stETH, a liquid staking token issued by Lido, which accounted for $560 million of new deposits.
Eigenlayer introduced limits last year as a way to prevent any single token from dominating the network. Instead of issuing its own tokens, the protocol relies on an open market where validators can choose services that help with security.
“In a completely neutral protocol, a single token could dominate the protocol and undermine decentralization,” Eigenlayer explained in a blog post. “This could result in the programmable trust market being subverted by a single counterparty… giving it the power to pick AVS winners and losers or engage in other harmful activities.”
The protocol resumed token re-staking yesterday and suspended the 200 Ethereum (ETH) (approximately $475,000) limit for the week. However, the team said they hope to eventually permanently remove the limit to “drive organic demand” and introduce new limits to prevent tokens or participants, such as exchanges, from controlling more than 33% of the governance.
Eigenlayer is part of a growing trend of “shared security” protocols that use Ethereum’s $34 billion worth of staked ETH to secure other chains. Users can earn additional rewards for risk-taking by depositing staked ETH or liquid staking tokens into Eigenlayer’s smart contracts. This also provides immediate economic security to new projects without the need to bootstrap your own validator and hardware network.
Ethereum founder Vitalik Buterin praised the idea, but at the same time warned that some implementations could overload the main chain.
“Beware of application-layer projects that take steps that risk expanding the ‘scope’ of blockchain consensus beyond validating core Ethereum protocol rules,” he wrote last year. “We must… preserve the minimalism of the chain, support the use of re-staking, which does not seem like a slippery slope to expand the role of Ethereum consensus, and help developers find alternative strategies to achieve their security goals. do.”
But proponents say Eigenlayer strikes a good balance by being blockchain-agnostic. The concept earned the protocol $50 million in Series A funding last March.
Ethereum’s transition to proof-of-stake has led to an explosion of centralized and decentralized services for earning revenue from staked coins. With a mainnet launch scheduled for later this year, the protocol is positioning itself to capitalize on the burgeoning interest in staking.
Many investors are now using platforms like Eigenlayer to “re-stake” already locked up tokens to further increase their rewards. But as Buterin noted, concerns about unintended consequences are also growing.
Currently, tens of millions of dollars continue to flow into Eigenlayer every day. The team said it would reimpose the temporary cap on Friday, February 9, as it continued to look for ways to achieve “a reasonable balance between the dual priorities of neutrality and decentralization.” What happens next is up to the protocol community.