More than $18 billion in cryptocurrency has flowed into new “re-staking” platforms, attracting investors with the promise of higher yields.
What Happened: The popularity of “re-staking” is growing rapidly, with over $18 billion worth of crypto assets now locked in these platforms. This trend is driven by traders seeking higher returns as Bitcoin BTC/USD approaches all-time highs and Ethereum ETH/USD sees significant gains this year, Reuters reported.
Seattle-based start-up EigenLayer has been at the forefront of this boom. The company, which raised $100 million from Andreessen Horowitz in February, has seen its platform’s assets surge from less than $400 million to $18.8 billion in just six months.
EigenLayer’s founder, Sreeram Kannan, explained that re-staking builds on the traditional crypto practice of staking, allowing users to lock up their tokens for validation purposes and earn yields.
“When there's anything that has collateral on collateral it's not ideal, it adds a new element of risk that wasn't there,” said Adam Morgan McCarthy, research analyst at crypto data provider Kaiko.
Re-staking takes this a step further by enabling users to stake newly-created tokens, which represent their staked assets, with different blockchain programs for potentially higher returns.
However, analysts warn that this practice could introduce hidden risks, especially if these new tokens are used as collateral in crypto lending markets. This could lead to destabilization if many users attempt to exit simultaneously.
Despite these concerns, the appeal of higher yields continues to attract investors to re-staking platforms. The practice is seen as part of the broader trend in decentralized finance (DeFi), where crypto holders seek to maximize returns without selling their assets.
"For now, we do not see any meaningful risk of contagion from restaking issues to traditional financial markets," said Andrew O'Neill, digital assets analytical lead at S&P Global Ratings.
Why It Matters: The surge in re-staking platforms comes amid a broader wave of optimism in the cryptocurrency market. Recently, Ripple CEO Brad Garlinghouse predicted the approval of ETFs for XRP XRP/USD, Solana SOL/USD, and Cardano ADA/USD, following the success of Bitcoin and Ethereum ETFs. This has further fueled investor interest in the crypto space.
Additionally, political figures like Robert Kennedy Jr. have shown support for cryptocurrency, applauding former President Trump’s commitment and expressing hope for alignment from the Biden administration. This political backing could provide a more favorable regulatory environment for crypto innovations like re-staking.
Standard Chartered’s cryptocurrency arm, Zodia Custody, has observed notable institutional interest in staking. However, Chief Risk Officer Anoosh Arevshatian expressed caution regarding re-staking, considering it a challenging step due to the difficulty in establishing a “paper trail” for asset destinations and reward allocation.
Image Via Shutterstock
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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