EigenLayer has officially launched on the Ethereum mainnet. This is a major development in Ethereum's staking ecosystem as it allows restakers to delegate their ETH to EigenLayer operators. Despite the enthusiasm surrounding its debut, EigenLayer is facing some challenges, like the absence of in-protocol payments and a slashing mechanism. Meanwhile, Stablecoin issuer Circle recently expanded support of its native stablecoin, USD Coin (USDC), to Ethereum's zero-knowledge layer-2 solution, zkSync. However, Ethereum-based investment products are experiencing a downturn, with large outflows despite the crypto market's overall positive inflows. This is compounded by skepticism from industry leaders about the SEC's approval of Ether ETFs.
EigenLayer Steps onto Ethereum Mainnet
EigenLayer, a restaking protocol with more than $13 billion in assets, has made its debut on the Ethereum mainnet according to an Apr. 9 blog post. This launch is a major step towards enhancing Ethereum's staking ecosystem, enabling restakers to delegate their ETH balance to EigenLayer operators. These operators are responsible for managing actively validated services (AVS), including applications and cross-chain bridges. However, despite the launch, EigenLayer still has to introduce key features like in-protocol payments to operators from AVS and a slashing mechanism, which penalizes validators for non-compliance. These features are expected to roll out "later this year" as the EigenLayer marketplace matures.
The absence of these features, especially restaking rewards, has sparked a lot of discussions in the crypto community. Galaxy Digital's vice president of research, Christine Kim, specifically pointed out the lack of restaking rewards in a post, questioning the protocol's immediate value proposition. Restaking protocols like EigenLayer aim to allow users to earn additional rewards by restaking their Ether tokens, which are already staked in other protocols like Lido or Rocket Pool. While restaking could potentially enhance earnings, it also introduces complex security and financial risks..
In tandem with its mainnet launch, EigenLayer introduced EigenDA, the first AVS on its protocol, designed to assist blockchain applications in storing transaction data. However, full deployment of other AVS is pending registration with EigenLayer. The reaction to EigenDA has been mixed, with some questioning the excitement around it given the lack of implemented risk and reward mechanisms essential for restaking.
Despite these challenges, EigenLayer's launch is a pivotal moment in the decentralized finance (DeFi) sector. With a total value locked (TVL) of $13.33 billion, EigenLayer has quickly ascended in the DeFi ranks, recently surpassing Aave to become the second-largest DeFi protocol behind Lido. However, the success of this ambitious endeavor still hinges on the timely introduction of the promised features.
What Exactly is Staking?
Staking has emerged as a very popular means for cryptocurrency holders to earn some passive income, similar to depositing money in a high-yield savings account. Instead of trading their digital assets, holders can lock them up to support the operations and security of a blockchain network. In return, they receive rewards in the form of percentage yields, generally offering much higher returns than traditional bank interest rates.
This process is integral to the proof-of-stake (PoS) consensus mechanism, used by certain blockchains to ensure honesty and integrity among participants, known as validators or stakers. Validators are required to lock away a specified amount of tokens as a form of security deposit. This stake acts as a deterrent against dishonest behavior since any attempt to compromise the blockchain would devalue the native token and result in financial loss for the perpetrator. Validators who faithfully execute their duties receive rewards in the blockchain's native cryptocurrency, with the reward size proportional to the amount staked.
To democratize access to the staking process, validators often create staking pools, allowing individual token holders to contribute their assets to a collective pool. This method reduces the entry barrier, enabling more participants to contribute to network security through delegated staking. While validators are generally rewarded for their service, they also face risks like penalties for minor infractions or even "slashing"—the removal of their stake for more serious offenses. Each blockchain has specific rules for its validators, with requirements varying widely across networks.
Circle Expands USDC to Ethereum's zkSync
Meanwhile, Stablecoin issuer Circle recently expanded support of its native stablecoin, USD Coin (USDC), to Ethereum's zero-knowledge layer-2 solution, zkSync. This move is part of Circle's ongoing effort to widen USDC's reach and utility across the blockchain ecosystem. USDC on zkSync is designed to facilitate payments, trading, borrowing, and lending within the DeFi space, leveraging zkSync's technology to offer fast, low-cost transactions. This technology utilizes zero-knowledge proofs to maintain transaction integrity without revealing sensitive data, and rollups to process transactions off the Ethereum main layer efficiently.
The integration of USDC into the zkSync ecosystem, which boasts over 180 decentralized applications and more than 5.7 million unique active wallet addresses in the last 30 days, is seen as a big step towards enhancing the scalability and efficiency of blockchain transactions. With this addition, USDC is now supported on 16 different blockchains, including major platforms like Ethereum, Solana, Base, and Arbitrum.
zkSync's core technology plans to increase Ethereum's throughput while still upholding its foundational values, making it a very attractive platform for developers and businesses who want to leverage blockchain technology for various applications. USDC on zkSync can be redeemed one-for-one for U.S. dollars through Circle, digital wallets, and exchanges, and can also be swapped for other USDC tokens through cross-chain bridges.
Despite Circle's proactive expansion strategy, it is still important to remember that the company is sometimes known for occasionally pausing its efforts. This was the case with the cessation of USDC minting on the Tron blockchain in February. Although Circle did not share any specific reasons for halting support for Tron, it did mention its commitment to continually assessing the suitability of all blockchains as part of its risk management process. This decision came in the wake of the United States Securities and Exchange Commission's lawsuit against Justin Sun and the Tron Foundation.
Ethereum Outflows
Despite these new developments, Ethereum-based investment products have not been faring too well recently. These products are experiencing a noticeable dip in investor interest. Despite the broader market's positive momentum, Ethereum saw a large outflow of $22.5 million last week, making it the fourth consecutive week of negative performance. This decline starkly contrasts with the gains seen in some of the other major altcoins.
CoinShares' latest report, which was released on Apr. 8, revealed a mixed landscape for digital asset investment. While the market overall enjoyed inflows of $646 million last week, pushing the year-to-date total to an all-time high of $13.8 billion, Ethereum struggled to attract the same level of enthusiasm. This slump happened despite Litecoin, Solana, and Filecoin registering weekly inflows of $4.4 million, $4 million, and $1.4 million, respectively. Solana, in particular, has been attracting a lot of attention as a formidable competitor to Ethereum, thanks to its scalability and transaction efficiency.
Its token, SOL, was also able to outperform Ethereum's Ether. In just the past 30 days, the price of SOL was able to climb by over 12%. On the other hand, ETH’s price took a 14+% hit over the same time period.
The fluctuating investor interest seems to extend beyond individual cryptocurrencies to the broader market of crypto-based investment products, including exchange-traded funds (ETFs). Although digital asset products saw decent inflows, the appetite for ETFs appears to be waning a bit. The initial excitement after the approval of spot Bitcoin ETFs in January is certainly not as strong as it was at the start of the year, with weekly flows and trading volumes not maintaining the high levels seen earlier in 2024.
Ether ETFs
Jan van Eck is also not too optimistic about Ether ETF approvals. The CEO of VanEck, expressed his skepticism about the Securities and Exchange Commission (SEC)'s likelihood to approve ETH ETFs anytime soon. In an interview with CNBC, he stated that he is sure that VanEck's application for a spot Ether ETF will very likely face rejection.
Van Eck specifically referred to the SEC’s usual regulatory procedure, mentioning that the SEC typically engages with applicants through comments and feedback in the weeks leading up to a decision. However, he pointed out a concerning silence on Ethereum-related applications, very different from the process that preceded the approval of Bitcoin ETFs.
Echoing Van Eck's sentiment, CoinShares CEO Jean-Marie Mognetti also voiced some of his own doubts about any Ethereum ETF approvals receiving approval in the current year.
