Market
DeFi in Crisis: Restaking Protocols Are Devouring Liquidity
The DeFi space is expanding, with liquid staking and restaking protocols gaining more and more attention. These developments allow users to stake and reuse assets multiple times, offering the potential for higher yields. However, as these systems become more complex, they also introduce potential systemic vulnerabilities.
Projects like EigenLayer are pushing the limits of yield maximization, but are these returns sustainable? The question remains whether these innovations are setting DeFi up for lasting success or creating the next wave of risks.
The Growing Influence
Restaking protocols, led by platforms like EigenLayer, have become a major force in the decentralized finance (DeFi) sector. Restaking refers to the process where users take assets staked on one protocol, such as Ethereum’s liquid staking tokens (LSTs), and stake them again on another platform to earn additional yields.
This process has unlocked significant earning potential, driving restaking’s rise. In 2024, liquid restaking tokens (LRTs) saw an enormous 4,900% growth in Total Value Locked (TVL), surpassing $15 billion from a mere $280 million in early 2024.
“The push for higher yields is a key to keeping staking attractive, especially as the total amount of ETH staked on the Beacon Chain grows and the average APY (annual percentage yield) declines. This is one of the main reasons DeFi and restaking protocols have been so well-received,” Alon Muroch, CEO and Founder at SSV.Labs, told BeInCrypto in an exclusive interview.
Read more: Ethereum Restaking: What Is it and How Does it Work?
Restaking protocols offer users opportunities to maximize returns on their staked assets without having to sacrifice liquidity. However, as restaking scales, concerns about liquidity and security risks are emerging.
“Each additional layer in restaking increases both risk and reward, making it a choice that users must make based on their risk tolerance. While it introduces more potential points of failure, it also opens up opportunities for significantly greater returns. Ultimately, the user has the freedom to decide the level of exposure they are comfortable with,” Muroch added.
Balancing the Promise and Peril of Restaking
Although the ability to re-use staked assets has been celebrated as an innovation, it simultaneously introduces new layers of exposure. In essence, restaking involves leveraging staked assets across different protocols, which may sound appealing for yield optimization, but it creates systemic vulnerabilities.
Muroch identified several main problems associated with restaking:
- Smart Contract Vulnerabilities. The complexity of restaking mechanisms increases the potential for bugs and exploits in the smart contracts governing these protocols. Users may lose funds if a contract is compromised.
- Complexity and Lack of Understanding. As restaking strategies become more complex, there is a risk that users may not fully understand the risks they are taking on. Some Actively Validated Services (AVSs) have higher risk than others due to more/complex slashing criteria for different AVSs.
- Slashing Risks. If a validator is found guilty of malicious behavior, a portion of their restaked ETH can be slashed. This risk is compounded because node operators are subject to slashing conditions for both the Ethereum base layer and any additional AVSs.
Moreover, the financial architecture behind restaking has left DeFi exposed to potential liquidity drains. For example, EigenLayer’s current restaking system allows users to restake liquid staking tokens (LSTs) multiple times, amplifying liquidity challenges. These risks were evident in the Ankr exploit, where a hacker minted 6 quadrillion fake aBNBc tokens, crashing the price of liquid staking derivatives across various protocols.
The unclear regulatory frameworks add to the complexity of restaking. Muroch cautions that regulators will likely take a cautious approach to restaking, seeing it as distinct from traditional staking because of its added layers of risk and complexity. They may impose stricter regulations to protect investors and ensure the stability of the financial ecosystem as these protocols gain traction.
The Threat of Over-Restaking
EigenLayer, one of the biggest restaking protocols, has garnered over $19 billion in TVL by mid-2024. While this impressive expansion demonstrates the market’s appetite for higher yields, it raises questions about the sustainability of these protocols.
The dominance of EigenLayer also poses a unique threat to Ethereum’s overall security. Since these restaking platforms are handling large quantities of staked ETH, any major failure could directly impact Ethereum’s security model.
Experts, including Ethereum co-founder Vitalik Buterin, have voiced concerns that if a restaking protocol failed, it could lead to calls for a hard fork of Ethereum to “undo” the damage, an outcome that threatens the network’s decentralized consensus.
Read more: How to Participate in an EigenLayer Airdrop: A Step-by-Step Guide
Muroch, however, downplayed the severity of the situation, describing it as “theoretically bad, but practically quite unlikely.”
“If a significant amount of Ether is locked in EigenLayer and a large operator suffers a major slashing event, it could lead to a cascade of slashing damage. In a worst-case scenario, this could compromise the extended security of the Ethereum network. However, it would take the slashed operator not fixing the problem for a long period of time for Ethereum’s security to be threatened,” he explained.
He also highlighted an important upside, noting that restaking raises the cost of corruption for potential attackers. This shift strengthens security by focusing not just on individual protocols but on the total sum of all staked assets.
Hidden Dangers of Yield Optimization
The pursuit of higher yields has led stakers to adopt increasingly complex strategies, which carries both financial and technical risks. Financially, restaking protocols encourage users to stake their assets across multiple platforms, tying up more capital in interconnected systems. This raises systemic financial risks, as vulnerabilities in one protocol could trigger broader consequences across the ecosystem.
Muroch cautions that restaking is still a relatively new concept, making it difficult to predict its long-term effects. The potential for unforeseen issues, especially in volatile markets, adds uncertainty to the future of these strategies.
“Staking rewards have only recently been introduced, meaning it will take some time to fully understand their long-term effects. As always, there are ‘unknown unknowns’ that could arise. In the future, if the value of restaked assets were to drop sharply, the heavy reliance on rehypothecation and complex financial derivatives could trigger a liquidity crisis,” he said.
This would likely cause users to liquidate their positions en masse, worsening market volatility. In such a case, confidence in the underlying protocols might erode further, potentially causing widespread destabilization in the DeFi space.
“At this point it’s really speculative. Looking back to the past in DeFi, trying to milk yields as hard as possible tends to end badly,” Muroch warned.
Ultimately, the success of restaking protocols hinges on their ability to balance maximizing yields with managing the inherent financial and technical risks they introduce. As these systems mature, the sector is beginning to diversify. New competitors are launching their own restaking solutions, which could help decentralize risk currently concentrated in platforms like EigenLayer.
This shift may reduce the systemic vulnerabilities tied to one dominant protocol, leading to a more stable and resilient DeFi ecosystem over time.
“As excitement wanes, the sustainability of these protocols will be tested, and their true value will need to be assessed in a more stable market environment. This transition could reveal whether the innovations are robust or merely speculative trends,” Muroch concluded.
Disclaimer
Following the Trust Project guidelines, this feature article presents opinions and perspectives from industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its staff. Readers should verify information independently and consult with a professional before making decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.
Market
Trump Media Files Trademark for Crypto Platform TruthFi
Trump Media & Technology Group is exploring the development of a crypto payment platform, as revealed by a recent trademark filing.
The application, submitted by Donald Trump’s social media company on Monday, outlines plans for a service named TruthFi. The proposed platform aims to offer crypto payments, financial custody, and digital asset trading.
Following the trademark announcement, Trump Media’s stock rose approximately 2%. At the time of writing, the stock was trading at $30.44, up by nearly 75% this year.
However, details about TruthFi remain scarce, including its timeline or operational specifics. This initiative suggests an effort by Trump Media to expand its business model beyond Truth Social.
The social media platform was established back in 2022, after Trump was banned from Facebook and X (formerly Twitter).
Nevertheless, launching a large-scale cryptocurrency platform could require Trump Media to acquire additional resources or partner with an established firm. This is because the firm currently has a small workforce of less than 40 employees.
“The filing, made with the USPTO on Monday, indicates that Trump Media plans to offer: Digital wallets, Cryptocurrency payment processing services, and A digital asset trading platform,” US Trademark Attorney Josh Gerben wrote on X (formerly Twitter).
As reported by BeInCrypto earlier, Trump Media is also in discussions to purchase the b2b crypto trading platform Bakkt. Shares in Bakkt surged by nearly 140% since the news earlier this week.
Meanwhile, the President-elect’s crypto plans seem to be in full swing even before he takes office in January. He is also reportedly considering the first-ever crypto advisor role for the White House, and interviewing several potential candidates.
Earlier today, the current SEC chair Gary Gensler announced his resignation before Trump’s term begins. Gensler’s resignation boosted the crypto market, as it signals a major change in the SEC’s regulatory stance.
Notably, XRP surged 7% to its highest value in three years. Bitcoin also neared $99,000, as the overall crypto market cap reached $3.4 trillion.
Disclaimer
In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.
Market
Banana Gun Rises After Justin Sun’s $6.2 Million Art Purchase
Justin Sun, founder of TRON and Poloniex CEO, has purchased the viral art piece Comedian—a banana duct-taped to a wall—for $6.2 million at Sotheby’s.
Following the purchase, Sun announced on X (formerly Twitter) that he plans to eat the artwork. This has ignited a frenzy of memes, commentary, and market reactions, even causing the crypto token Banana Gun to spike in value.
Crypto Reacts: Banana Gun on the Rise
Maurizio Cattelan’s Comedian gained international fame in 2019 when it was first displayed at Art Basel Miami. Its simplicity and absurdity—a banana taped to a wall—sparked debates about the nature of art. The so-called artwork became viral when performance artist David Datuna ate it in a stunt dubbed Hungry Artist.
Sun’s pledge to eat the $6.2 million fruit has also drawn parallels, adding another layer of humor to the piece’s history. The Tron founder even said he’s willing to donate the banana to Elon Musk and send it to Mars.
Meanwhile, several users even recreated their own version of Comedian and shared it on social media. One fan followed up by taping bananas around the Massachusetts Institute of Technology (MIT) campus, encouraging others to “tape all over the world” and start a movement.
What they are campaigning for, precisely, remains to be seen.
“In the coming days, I will personally eat the banana as part of this unique artistic experience, honoring its place in both art history and popular culture. Stay tuned,” Sun said on X.
The ripple effects of Sun’s purchase eventually trickled beyond the confines of art and humor and into crypto markets. The token Banana Gun, which shares its name with the theme, surged nearly 16% following the news. Traders and enthusiasts, ever attuned to cultural moments, appear to have seized the chance to capitalize on the buzz.
Sun’s acquisition and the banana’s virality bring to mind another recent development in the art-crypto nexus. Earlier this week, Ethereum co-founder Vitalik Buterin allegedly minted 400 Patron NFTs. This development sparked hopes of a resurgence for the NFT market.
This aged well…. $BANANA is an insane project. For me, this is in the same league as $ZIG. Fundamentals are truly insane. No matter which narrative will cook next, $BANANA will profit from it,” said one trader on X.
The combination of Sun’s high-profile purchase and the market’s reaction to Banana Gun demonstrates how art, humor, and technology continue to blur boundaries. Whether Sun’s banana-eating spectacle will leave a lasting impact or peel away (pun intended) into meme history, one thing is certain—the intersection of crypto and culture remains as unexpected as ever.
Disclaimer
In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.
Market
Cardano (ADA) Price Hits 41% Weekly Growth, $1 Target in Sight
Cardano (ADA) price has surged 41.89% in the last seven days, signaling strong bullish momentum in the market. The uptrend remains strong, supported by key technical indicators like the ADX and Ichimoku Cloud, which point to sustained positive sentiment.
However, signs of consolidation and narrowing gaps in short-term indicators suggest that the rally could face challenges if buying pressure weakens.
ADA Current Uptrend Is Still Strong
Cardano DMI chart shows an ADX of 42.7, indicating a strong trend. The metric has remained above 40 since November 7. This high ADX value confirms the robustness of ADA ongoing uptrend, signaling solid momentum behind the recent price movements.
With the positive directional index (D+) at 21.3 and the negative directional index (D-) at 11, bullish pressure continues to outweigh bearish activity, further supporting the upward trajectory.
The ADX measures the strength of a trend without considering its direction. Values above 25 indicate a strong trend, while those below 20 suggest a weak or nonexistent trend. With an ADX at 42.7, ADA is clearly in a strong uptrend, showing significant market confidence.
The gap between D+ and D- reinforces the bullish dominance, suggesting that ADA price could sustain its upward movement if current conditions persist.
Cardano Ichimoku Cloud Shows An Important Signal
The Ichimoku Cloud chart for Cardano indicates a generally bullish trend, as the price remains above the cloud (Kumo). The Tenkan-sen (blue line) and Kijun-sen (red line) are relatively flat, showing signs of consolidation after ADA’s recent rally.
While the price is still trading above these lines, the narrowing gap between the price and the Tenkan-sen suggests weakening short-term momentum.
The green cloud ahead signals potential support for ADA uptrend, but the current consolidation phase highlights the need for sustained buying pressure to maintain this momentum.
If the price drops below the Kijun-sen or approaches the cloud, it could signal a possible shift toward bearish sentiment.
ADA Price Prediction: Can It Reach $1 In November?
If Cardano (ADA) maintains its strong uptrend, it could test the resistance at $0.85. Breaking this level could pave the way for further gains, with the potential to reach the $1 threshold, marking a 20% rise from current levels and the highest price for Cardano since April 2022.
However, as indicated by the Ichimoku Cloud, a potential reversal could be on the horizon. If bearish momentum takes over, ADA price could face significant downward pressure, potentially dropping to $0.51.
If this support fails, the price could decline further to $0.32, representing a steep 59% correction. This highlights the importance of the current support and resistance levels in determining ADA’s next direction.
Disclaimer
In line with the Trust Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto is committed to accurate, unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult with a professional before making any financial decisions. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.
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