Restaking is an increasingly-popular trend that allows users to stake the same tokens on the main blockchain and other protocols, securing multiple networks at once and ensuring capital efficiency. We covered the concept of restaking expensively here.

Bloomberg reports that speculators have invested nearly $2 billion in Ethereum restaking projects within the decentralized finance (DeFi) sector. Restaking aims to simplify the process for blockchain developers and offers the potential for high returns upon project launch. DeFi, which seeks to create a marketplace without intermediaries, has faced challenges due to hacks and questionable projects, but interest in Ethereum restaking has grown.

Investing in unchartered territories

In January, EigenLayer, a DeFi protocol specializing in restaking, surpassed its liquid restaking capacity, resulting in a total value locked of over $1.4 billion. Since mid-December, when EigenLayer increased its restaking capacity, the deposited amount of liquid staking tokens (LSTs) and ETH in EigenLayer's smart contracts has grown more than fivefold from around $250 million.

Restaking offers Ether holders the opportunity to earn higher returns compared to the fixed rate offered by staking on the Ethereum network. EigenLayer has experienced significant growth due to the emergence of new platforms like KelpDAO, ether.fi, and Renzo. These platforms provide derivative versions of restaked Ether tokens, which can be utilized in other DeFi applications to earn rewards or enable borrowing against the derivative tokens to enhance staking rewards. Combined, these projects have attracted deposits of over $800 million.

It’s no wonder that investors are taking calculated risks by staking huge amounts of Ether and derivative tokens. The inherent gamble is that these investments will yield substantial returns once the respective projects come to fruition. The attractiveness of such speculative endeavors underscores the prevalent risk appetite within the crypto community, with investors venturing into uncharted territory in pursuit of potentially groundbreaking profits.

The Scramble for Outsized returns

Traders are investing significant amounts of money in live DeFi platforms such as Pendle Finance. Pendle enables leverage betting on potential rewards from restaking, offering attractive returns of over 30% on deposited liquid restaking Ether tokens. However, there are concerns that speculators are once again chasing high returns in the DeFi sector before they are paid out. EigenLayer's official launch is set to take place in the first half of this year.

Image Credit: cryptorank