Coinbase analysts David Han and David Duong have highlighted the potential of Ethereum restaking to serve as a foundational element for numerous decentralized applications (DApps) on the blockchain.

However, they also caution about the introduction of new hidden risks associated with restaking and the issuance of liquid restaking tokens (LRTs). Eigenlayer, an Ethereum restaking protocol, enables users to earn additional rewards through LRTs by securing actively validated services (AVS) with staked derivative tokens obtained from liquid staking protocols like Lido.

While initially straightforward, the Eigenlayer protocol allows staked tokens committed to one AVS to be restaked to another AVS, potentially amplifying risks. Additionally, the introduction of LRTs may lead restakers to concentrate on higher-yield providers, potentially increasing the overall risk profile. Moreover, LRT providers and decentralized autonomous organizations (DAOs) may engage in multiple restaking to maintain competitiveness, further complicating the risk landscape.

Despite these challenges, the analysts believe that EigenLayer's restaking protocol has the potential to underpin various new services and middleware on Ethereum, offering significant rewards for validators in the future.

They anticipate a short-term drop in Eigenlayer's total value locked (TVL) when yield farming ends or if early AVS rewards fall short of expectations, despite the long-term growth in restaked ETH. Eigenlayer's rapid rise in the DeFi space has raised concerns among Ethereum developers regarding potential leverage issues, although proponents argue that restaking offers additional rewards for ETH holders who have already staked their assets.