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.

Did you know?

Want to get smarter & wealthier with crypto?

Subscribe - We publish new crypto explainer videos every week!

Crypto Day Trading VS Swapping: What’s More Rewarding? (Animated)

SUBSCRIBE

ON YOUTUBE

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.