Ether Restaking: Risks, Rewards, and the Emergence of the Haven1 Liquid Staking Token
Summary:
The rise of Ether restaking protocols offering significant passive returns has sparked concerns over economic sustainability and security. Asset looping in restaking, where the same capital is deployed into multiple protocols, increases risks. Liquid staking, a process that offers a copy of an underlying Ether token for deployment in other DeFi protocols, had a total value locked (TVL) of over $51.1 billion, outperforming the lending market. Haven1, an EVM-compatible blockchain, recently launched its liquid staking token, hsETH, offering an annual percentage rate (APR) of up to 25.24% to attract the community early in the testnet.
Newly developing Ether restaking protocols are luring investors with substantial passive income possibilities which has sparked substantial apprehensions with regard to economic viability and security. In a conversation with Cointelegraph, Owens suggested investors need to be aware of the risks associated with asset looping in restaking protocols. He emphasized that the repetitive use of assets in these protocols amplifies the risk, as the withdrawal of just one layer could lead to a domino effect.
Asset looping in restaking essentially means investors are using the same funds across multiple protocols - this is made possible by liquid staking. This form of staking provides investors a replica of the underlying Ether token, which can be used in other decentralized finance (DeFi) protocols. An Ether-compatible blockchain that just released its own liquid staking token, hsETH, is Haven1.
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While restaking is a powerful financial tool, Owens stresses the importance of investors understanding the layers they incorporate into their assets. The appeal of liquid staking for cryptocurrency investors lies in its capital efficient approach compared to traditional staking protocols, which don't permit the reinvestment of staked assets.
With an impressive total value locked (TVL) exceeding $51.1 billion, liquid staking stands as the top protocol category. In contrast, the cummulative TVL of the lending market is a mere $32 billion, as per data from DefiLlama.
Top 10 DeFi protocol categories. Source: DeFiLlama
Concerning Ether restaking, Owens highlights the need for investors to comprehend the layers they're adding to their assets despite it being a valuable financial instrument. He further added that the goal of Haven1 is to shield from such risks.
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How does hsETH offer a 25% APY yield?
Investors accessing Haven1's recently launched restaking portal are being offered a remarkable 25.24% annual percentage rate (APR) on top of the current 3.24% Ether restaking APR.
The significant APR has caused some skepticism, particularly considering it surpasses the 20% yield offered by Anchor Protocol on Terra's UST before the collapse of the algorithmic stablecoin issuer Terra in May 2022.
However, there's no need for concern for another Terra-like failure as hsETH's 25% yield is a provisional stimulus mechanism by Haven1, to be adjusted over time depending on supply and demand factors. Owens further stated that this APR is not sustainable for Haven1 and is simply used to attract the community early in the testnet.
To ensure extra security for its emerging restaking environment, Haven1 established a reserve fund made up of 10% of all application fees generated through the network, as explained by Owens.
Jeff Owens, Cointelegraph interview. Source: Cointelegraph
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Published At
6/24/2024 2:18:26 PM
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