EigenLayer on the brink of a productivity crisis

EigenLayer, the largest recovery protocol on Ethereum by total value locked (TVL), may face a “major” production crisis, according to industry observers.

According to Chudnov, an anonymous developer on the 3Jane Derivatives Exchange, with the rapid development of EigenLayer in TVL, the protocol may be developing Actively Authenticated Services (AVS), which may result in significant production cuts. In a post on April 22 X wrote:

“EigenLayer has >$15B in TVL but AVSs need less than *10%* for security, meaning the product could fall off a cliff.”

EigenLayer removed the limit on all Liquid Staking Tokens (LSTs) on April 16, according to X's announcement. EigenLayer launched on April 10th on the mainnet.

When a user shares LST through EigenLayer, it is sent directly to the node operator, which uses the deposit rewards to secure AVS on EigenLayer. A portion of the prize will be transferred to the user.

However, actively authenticated services on the protocol require a large amount of Ether (ETH) for security, which could lead to issues in the future, according to Chudnov:

“The problem is that no AVS has come close to seeking $15 billion in security, let alone $1.5 billion. The whole point of the stock valuation is that the value of the stock is greater than the profit that can be made from the dishonest act of the valuer.

Cointelegraph has reached out to EigenLayer for comment.

EigenLayer is the second largest protocol on Ethereum after the liquid staking protocol Lido. EigenLayer's TVL grew more than 16 percent last month to $14.15 billion, Defillama said.

Related: EigenLayer Becomes 4th Largest Reworking Protocol, Closes to $7 Billion TVL

As AVSS is not incentivized to hold on-chain capital, the issue may worsen as altcoin prices decline. The first solution may be a series of token launches to increase security budget requirements, which may be “kicking the can down the road” for the time being.

However, integrating EigenLayer into the decentralized finance (DeFi) ecosystem and creating an additional resource for LSTs provides a sustainable solution. According to Chudnov:

“if so [the EigenLayer] The ecosystem can further cancel itself out in the DeFi ecosystem. [Liquid restaking tokens] And Financial Primitives above then this is a more defensible area and gives AVS more time to figure things out at minimal cost.

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