Coinbase warns of potential ‘hidden risks’ that may arise from Restaking on Ethereum

Coinbase has raised concerns about the potential risks of Ethereum restaking and the issuance of liquid restaking tokens (LRTs). In a recent research report, Coinbase analysts David Han and David Duong highlighted the risks associated with restaking through the Ethereum restaking protocol Eigenlayer. While restaking initially seems straightforward, Eigenlayer allows staked tokens to be allocated to multiple validators, increasing earnings but also compounding risks. Additionally, the introduction of LRTs could lead to concentration of restakers in high-risk providers offering the highest yields. The analysts also noted that LRT providers and decentralized autonomous organizations (DAOs) would be incentivized to restake multiple times to remain competitive. Despite these risks, the analysts believe that Eigenlayer’s restaking protocol has the potential to become the foundation for new services and middleware on Ethereum. However, they anticipate 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 and has become the second-largest DeFi protocol, surpassing Aave. The growing popularity of restaking has sparked controversy and raised concerns among Ethereum developers about the potential for excessive leverage. Restaking proponents argue that it offers additional rewards for ETH holders. In related news, a team of white hat hackers called “SEAL 911” has been formed to combat crypto hacks in real time.