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Ethereum’s Thriving Staking Ecosystem
Hidden Risks of Staking
According to a research report released by Coinbase on Tuesday, “staking” has developed into the second-largest decentralized finance (DeFi) application on the Ethereum blockchain and is poised to become a core part of the ecosystem infrastructure. The report states:
According to data from DefiLlama, EigenLayer is currently the second-largest DeFi protocol with a total locked asset value of $12.4 billion, second only to Lido.
EigenLayer allows validators to earn additional rewards by staking their “staked Ether” and provides protection through Active Validator Services (AVS). The protocol is built on existing staking ecosystems and achieves staking through “Liquidity Staking Tokens (LSTs)” or “directly staked Ether (ETH)”. This mechanism aims to strengthen the foundation of the Ethereum staking ecosystem.
However, Coinbase points out that the development of Ethereum’s staking ecosystem may also bring some hidden risks.
There have been many “liquidity staking platforms” built on the EigenLayer protocol, which deposit users’ assets into EigenLayer and provide them with tradable certificates called Liquidity Staking Tokens (LRTs), unlocking liquidity for users to participate in staking on EigenLayer. However, Coinbase states that compared to existing staking products, staking and LRTs may bring additional financial and security risks.
The report also notes that stakers will gravitate towards LRT providers offering the highest rewards. This could lead to additional risks as these providers maximize rewards by staking multiple times to attract more users.
Despite these hidden risks, the Coinbase research team still believes that staking represents Ethereum’s open innovation and will become a core part of the ecosystem infrastructure.
